Errors and Omissions Insurance – Negligence
Some professionals, particularly IT and software professionals, claim they have no E&O exposure. Why do they think this? The answer comes from their partial understanding of the concept of negligence. Specifically, you can only be found professionally negligent (of having committed malpractice) if it is ruled that you breached professional duties that exist as a matter of law.
As we have stated, the core of an Errors and Omissions Insurance Policy is coverage for economic damages alleged to have been caused by the negligent performance of covered services. If such standards and duties do not exist for the service provider’s profession or industry, the service provider does not need to worry, right? Wrong.
Professionals who think they have no exposure if they get sideways with a client are mistaken. There are three forms of negligence. Not one. And the law on professional negligence itself is not settled. Furthermore, there are several other causes of action open to unhappy clients.
E&O Policies Respond To The Three Types Of Negligence
There are three primary forms of negligence – ordinary negligence, gross negligence, and professional negligence (malpractice).
To be guilty of Ordinary Negligence, one must breach his or her duty to a standard of care that a regular person (not a professional) would deem appropriate. Anyone, even a non-professional, is subject to this exposure. This puts to bed the notion that some professional service providers are not subject to E&O claims.
An Errors and Omissions Insurance Policy typically covers economic damages stemming from ordinary negligence when performing covered professional services.
But that’s not all.
Gross Negligence is a careless or reckless disregard which results in harm. Gross Negligence can result in the award of punitive damages. Anyone, even a non-professional, is subject to this exposure.
Economic Damages stemming from Gross Negligence are typically covered under E&O policies. (However, punitive damages often cannot be).
Professional Negligence – Malpractice
Professional Negligence, or malpractice, results from breaching a professional standard of care or a professional standard of conduct.
Traditional Professional Practices
Doctors, Lawyers, CPAs, and to a lesser extent Architects & Engineers, are clearly subject to extensive, legally binding professional standards. Policies written for these professionals are often called malpractice insurance, or professional liability Insurance, rather than Errors and Omissions Insurance.
Licensed Miscellaneous Professionals
Other professionals, while not having as much training as the traditional professionals, also are subject to professional standards – this is typically the case for licensed miscellaneous professionals – for example stock brokers, real estate agents, notaries, and the like.
Unlicensed Miscellaneous Professionals
Finally, many businesses operate in unlicensed service industries. For example many IT professionals do not have a license.
There may well be some unlicensed providers of services who are presently subject to legally binding professional standards. And for those service areas where this is not clearly the case, one must remember that legal standards continue to evolve. Indeed, the existing legal status of some traditional professional standards were themselves the result of just such an evolution.
A mongrel legal concept, combining tort law and contract law, has circulated through some states. Called “negligent breach of contract,” this legal theory could present challenges to some professionals.
For IT professionals, it seems a little hard to believe that standards of practice in some areas will not eventually result in legally enforceable standards. Technology seems too critical a service for that not to happen. Even now, IT professionals calling themselves engineers (software engineers) may be heading in that direction. In any event, even if this does not happen, a client unhappy with your performance may often be able to pursue you legally using contract law rather than tort law. And, the government also imposes sanctions to some forms of negligence. Most significantly, for some privacy and security failures.
Unhappy Clients Have Other Causes Of Action They Can Pursue
Negligence is not the only thing professionals need to worry about. To learn more about additional professional perils, use the following links, or contact us for more information.
- Contractual Claims – Breach Of Warranties, Representations, and Contract
- Statutory Provisions Related To Privacy & Security
Also, one must not forget that professionals can be, and often are, subject to suits for the violation of intellectual property rights (IPRs).
As you can see, we take E&O Insurance seriously. If you’d like to get quotes from a professional, go to Get An E&O Insurance Quote to get the process started or get more information. We’d be happy to help.
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