Errors and Omissions Insurance Basics
Errors and Omissions Insurance – What Is It?
Errors and Omissions Insurance covers economic damages stemming from allegations of negligence, and sometimes from breaches of warranties or misrepresentations said to have been made about the professional services to be delivered. It is also often extended to cover some intellectual property and privacy and security risks. Occasionally, when the exposures of a profession warrant it, the policy contract can be extended to cover some bodily injury and property damage.
Errors and Omissions Insurance – Who Needs It?
The core coverages provided by E&O Insurance can be useful, even for those with General Liability Insurance, because those policies were not designed to cover economic damages caused by professional services. Typically, the General Liability Insurance Company will put a professional services liability exclusion on the policy, and generally only cover liability for bodily injury, property damage, and sometimes personal and advertising injury.
Anyone who provides services is subject to claims from clients who are unhappy with those services. This of course includes the traditional professions such as Doctors, Lawyers, CPAs, and Architects. It extends to all others who provide licensed services, such as stock brokers, real estate agents, and notaries. And it even reaches many others who provide services but are not required to hold a license – for instance some IT professionals.
Many companies who hire small contractors to perform services for them recognize the value of Errors and Omissions Insurance and require those contractors to buy it. Some carefully stipulate the types of coverage they want included in that policy. Others simply state that E&O Insurance or Professional Liability Insurance is required.
Whether you are interested in protecting yourself against particular exposures, or you will be signing a contract with a client that requires you to carry E&O Insurance, or both, we can help you by getting multiple proposals from competing insurance companies. Proceed directly to E & O Insurance Quotes to get the process started or ask questions. Or read on to learn more.
Negligence Coverage For Economic Damages
Coverage for financial losses alleged to have been cause by negligence is at the core of an E&O Insurance Policy. Negligence is what E&O Insurance policies were originally designed to cover. There are actually three primary forms of negligence (learn more about the three forms of negligence here). This coverage is for economic damages, and does not usually extend to Bodily Injury (BI) or Property Damage (PD) Liability. Personal Injury Coverage (PI), for things like slander or false imprisonment is extended more often than for BI and PD, but not always.
Breach Of Contract, Representations, And Warranties
Particularly when suing unlicensed professionals, unhappy clients litigate on this basis more often than for negligence. These types of claims provide plaintiffs with an alternative (or sometimes additional) form of lawsuit against service providers.
In a few states, a new sort of concept has arisen that is a sort of cross between negligence and contractual liability. This mongrel concept has been called “negligent breach of contract.” That area of the law is still developing.
- Learn About The Three Forms Of Negligence – And Why Some Professions Sued More For Breach of Contract
Intellectual Property Liability Coverage
Intellectual property claims against professional services providers have been increasing at a staggering rate. It is probably the case now that for many professional service providers, the intellectual property risk is bigger, sometimes much bigger, then the risk related to negligence.
While E&O policies never cover Patent Infringement, often they can be configured to cover copyright and trademark infringement resulting from covered professional services. Coverage for the missapropriation of trade secrets is extremely difficult to obtain in an E&O policy. However, Alta has access to a policy that offers it.
Professionals providing technology services, or making use of technology are particularly exposed. So are professionals who create or provide content, artistic work, or designs.
E & O Policies that cover some intellectual property claims can be significantly more expensive than a bare bones policy just providing coverage for negligence.
Companies requiring their contractors to hold E&O Insurance are often aware of these exposures and require that they be covered by the policy.
Privacy and Security Coverage
Privacy and Security exposure is an acute exposure for those providing technology services, or who make use of technology when providing services. Most of us are well acquainted with the possibility of the release of personally identifiable financial or medical information. But in addition, a security breach can cause the release of trade secret information, or sensitive legal files. It is also possible to be held liable for the accidental transmission of a computer virus.
E&O Insurance policies often include coverage for privacy & security claims. But these policies are more expensive, and the coverage must be read carefully. For example, policies may not cover the loss of trade secrets that occur as a result of a breach. Or they may place sub-limits on particular coverages.
Privacy & Security has been getting significant play in the media. And many companies are requiring that their independent contractors, particularly technology contractors, carry this form of coverage.
If you care about the quality of the coverage you are getting and feel you are exposed to this form of loss or allegation in the work that you do, you should work carefully with an expert like Alta to understand any policy you are being offered.
Bodily Injury, Property Damage, and Personal Injury Coverage
In theory, a General Liability Insurance Policy is meant to cover bodily injury and property damage liability claims. However, as we stated, typically the General Liability Insurance Company will attach a professional services exclusion to the policy. For some professions, this can create a problem, because bodily injury or property damage can directly result from their professional services. Additionally, there are gray areas that should be addressed. For example, what happens if a client is upset about the professional services provided and has a heart attack?
Personal Injury Coverage includes things like slander. The policy provisions are tricky and should be read very carefully, as it could apply to the personal and advertising injury portion of the General Liability Insurance Policy or it could apply to the E&O Policy (if the E&O policy provides the coverage). Generally the idea is that PI in relation to the provision of professional services should be covered with the E&O and PI related to advertising and other activities should be covered by the General Liability Insurance.
As we indicated, certain professions are particularly exposed to these sorts of claims. For example, a repossessor is exposed to property damage liability claims in relation to its professional services. A private investigator is subject to personal injury liability claims. And so on. Those in professions such as these need to take particular care that important exposures don’t fall between any cracks that might exist between their General Liability Insurance policy and their Errors and Omissions Insurance policy.
Once again, if you care about the quality of the insurance you are getting, and you feel you could be exposed to this form of loss in the professional work that you do, you should work carefully with an expert like Alta to understand and compare competing policies.
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