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Errors & Omissions: Protecting Your Business Beyond General Liability

Errors and Omissions (E&O) is insurance to protect you and your company if a client claims they suffered a financial loss because of an error or an omission committed by you in the delivery of your professional services. This could result in a lawsuit.

What is E&O?

E&O is a limited insurance category designed to protect you against professional error. Professional error is a risk in any business environment. For example:

  • Shipping a valuable piece of art to the wrong location
  • Selling software that might cause a customer's computer systems to shut down
  • Hiring a subcontractor who doesn’t fulfill his obligations to the job, impacting the project’s deadline

The number of possible professional errors run a wide range and many may not be serious. However, some will certainly cause a customer to sue you.

The benefit of E&O is that it protects you across a range of legitimate professional errors and against frivolous lawsuits by paying for legal costs.

Who Needs E&O?

While errors and omissions insurance has been part of the insurance portfolio of doctors, lawyers, financial services professionals and realtors, many businesses face professional liability risk. To help determine whether you need E&O, ask yourself , "Can I afford a lawsuit due to a professional error on my part?" For the majority of small businesses, the answer is probably no. It doesn’t matter if you win or lose the lawsuit, because there's the question of paying the lawyers.

Often businesses will require their vendors and subcontractors to hold E&O insurance. Even if it isn’t required, showing prospective customers that you are protected may give them the peace of mind they need to hire you. If you consider the alternative, you'll see that the annual premium, which varies based on the number of your insured employees  and nature of your business, could be a  cost-effective way to obtain needed protection.

 Footnote: This is a brief overview of Errors & Omissions Insurance. You should read a policy thoroughly before purchasing any insurance policy.