Errors And Omissions Insurance Explained
Errors and Omissions (E&O) insurance is a liability product that protects professionals. The insurance covers true errors or mistakes that affect a third party; however, it does not cover intentional errors or poor judgment. Many professionals are required to obtain E&O insurance due to the high risk involved with a specific profession. For example, due to the risk involved with the financial industry, many accountants or stockbrokers should consider purchasing an E&O insurance policy. Several factors can affect the cost, benefits and weight of a policy and the business should be evaluated prior to considering the purchase.
Unfortunately, people make mistakes and when the mistake affects a client's financial standing, the client has a right to file a claim with the appropriate court. However groundless the action may seem, a client may sue a company if the expected or intended results did not arise due to an error or mistakes.
As a result, the cost of litigation alone can have a profound effect on a company's bottom line. For example, a stock broker can be sued by a client even if the client was aware of the risk involved with purchasing a particular stock. To further illustrate, a printer could be sued for inadvertently printing wedding invitations with the wrong date. So, E&O policies protect a business from claims by providing specific coverage.
E&O insurance protects a business from claims arising from services rendered and typically cover court fees and the amount of a claim up to the insurance contract price. In addition, a policy may cover settlements and the defense attorney's bill. As a result, this type of insurance can protect a small business from bankruptcy and protect the bottom line of a larger business. The insurance may also be required to participate in membership associations.
Some organizations require that professionals obtain E&O insurance. For example, the Financial Industry Regulatory Authority--the largest regulator of United States securities firms--requires that securities professionals obtain an E&O policy. Many other organizations and membership associations require their members obtain this insurance to remain in compliance with their programs.
E&O policies each have different standards, which require that purchasers read the contract closely. A policy for an attorney, a dentist and a photographer will have different inclusions. Some policies exclude punitive damages while others may include the defense attorney's bill in the total liability. As a result, the policy should be reviewed carefully to ensure it meets a business' or professional's exposures.
People make mistakes, which, unfortunately, can affect a third-parties financial standing. As a result, professionals and businesses alike obtain an E&O policy to compensate clients and protect the company's income. E&O policies range in pricing and contract terms and should be closely reviewed prior to purchase.
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