What Is Errors and Omissions Insurance?
Errors and omissions insurance (E&O), also known as professional liability insurance or malpractice insurance, is designed to protect businesses from legal claims arising from professional mistakes. While the scope of this insurance is narrower than general liability, it plays a crucial role for professionals offering services. E&O insurance helps cover lawsuits that involve allegations such as:
- Negligence
- Mistakes or Errors
- Omissions (failure to perform a required action)
- Breach of Duty
- Misrepresentation
- Inaccurate Advice
- Failure to Meet Professional Standards
- Defamation (libel or slander related to professional services)
- Violation of Contractual Obligations
- Failure to Deliver Services as Promised
What Is General Liability Coverage?
General liability insurance, on the other hand, offers broader protection. It covers the typical risks that businesses face, like accidents or damage to property. It is considered the foundation of most business protection plans, covering lawsuits related to:
- Bodily Injury
- Property Damage
- Personal Injury (e.g., slander, libel, defamation)
- Advertising Injury
- Medical Payments
- Legal Defense Costs
What Makes General Liability and Errors and Omissions Insurance Similar?
Both Policies Cover Certain Unavoidable Liabilities
Whether you’re providing professional services or simply running a business with physical premises, both general liability and errors and omissions insurance help cover unavoidable risks. For instance, if someone gets injured at your place of business, general liability covers medical costs and damages. If, however, a client accuses you of a professional error that resulted in financial loss, E&O insurance steps in to protect your business. Essentially, both policies offer necessary protection against common business liabilities.
Both Policies May Be Required by Client Contracts
Another similarity between general liability and errors and omissions insurance is that both may be required by client contracts. Large corporations or clients may require a business to have a certain level of insurance coverage to mitigate their own risks. Whether it’s general liability to cover bodily injury or property damage, or E&O to cover professional errors, many clients want the peace of mind that comes with knowing your business is properly insured before they engage in a contract.
Both Policies Offer “Claims-Made” Coverage
A key similarity is that both general liability and errors and omissions policies often operate on a claims-made basis. This means that in order for a claim to be covered, the incident must occur and the claim must be filed while the policy is active. For example, if your general liability policy was in force during an accident and the claim is made afterward, the insurance will cover the costs associated with that claim.
What Makes General Liability and Errors and Omissions Insurance Different?
Different Scope Of Risk Exposures
General liability and errors and omissions insurance have different focuses. For example, general liability does not cover professional mistakes like offering inaccurate advice or failing to meet a contractual obligation. If a client were to sue for professional negligence or breach of duty, E&O insurance would be the appropriate coverage. In contrast, if someone falls on your property and sustains injuries, general liability would cover that lawsuit, not E&O.
Different Scopes Of Protection
The protection offered by general liability and E&O is also distinct. General liability covers physical injuries and damages to property, while E&O focuses solely on financial losses related to professional services. For example, if a consultant provides faulty advice that leads to a financial loss, E&O insurance would cover the lawsuit. However, if a customer is injured while visiting your office, general liability would protect you from the financial repercussions of the injury.
Who Needs General Liability Insurance?
Businesses of all sizes and industries should consider general liability insurance. If your business interacts with clients, customers, or the public, you face the risk of lawsuits for injuries, property damage, or advertising issues. From construction contractors to consultants, general liability insurance is often necessary to protect against lawsuits that could arise from daily operations.
Who Needs Errors and Omissions Insurance?
Businesses offering professional services are most likely to need errors and omissions insurance. This includes industries like law firms, accounting practices, financial consultants, and technology companies. Essentially, if your business provides specialized advice, services, or expertise, then E&O insurance is a must. The coverage helps protect your business if a client claims that your work caused them financial harm.
Why Carry Errors and Omissions Insurance?
E&O insurance protects against the financial implications of lawsuits stemming from mistakes or oversights in your professional services. But it’s not just about protection — errors and omissions insurance is often a requirement for certain contracts or professional licenses. Demonstrating that your business has E&O coverage is a way to show clients that you are serious about mitigating risks. Additionally, bundling E&O with cyber insurance (often referred to as tech E&O) can offer comprehensive coverage for tech companies facing lawsuits related to their services.
Why Carry General Liability Insurance?
General liability insurance covers more than just the risks that come from professional work; it also protects against property damage and personal injuries. In some cases, states require general liability insurance as part of a contractor’s licensing process. Even if not required by law, general liability insurance is essential for businesses that lease property, as landlords often require this coverage. It safeguards your business assets and ensures you can cover expenses related to accidents, injuries, or other liabilities.
Your Key Takeaways
Both errors and omissions insurance and general liability insurance offer crucial coverage, but they protect against different types of risks. While general liability offers broad coverage for accidents and physical damage, E&O insurance is specifically designed to protect businesses from legal claims related to professional services. Depending on the nature of your business, you may need both types of insurance to fully safeguard your operations and protect your reputation from potential legal and financial consequences. So, whether you’re wondering “Do I need E&O insurance?” or “Who needs E&O insurance?”, it’s essential to assess your business needs to ensure comprehensive coverage.
