May 03, 2019 | Industry Insights, Insights
Get the Right Errors and Omissions Coverage for your Business!
After careful consideration, you’ve made the decision to obtain Errors and Omissions (E&O) coverage to protect your company’s financial assets. So what exactly are you getting? An E&O policy is a type of professional liability coverage intended to defend your business from suits of negligence, regular business operations errors, and failure to perform business duties. All E&O policies serve the same purpose of liability defense, but not all are created equal. Before deciding on an E&O program, it is wise to consider asking your broker some key questions to ensure that you are getting the best possible coverage.
Defense First and Foremost:
Like any liability policy, E&O is intended first and foremost to defend you, the assured. Often times E&O claims have no merit, yet still require defense. Many E&O policies provide “first dollar defense”. This means that the defense against a lawsuit is secured in advance of the deductible being paid – so if you are the target of a frivolous charge, your defense is entirely provided by the insurance company. With any E&O policy, you don’t have to worry about the unexpected costs arising from lawsuits for covered claims. Out of pocket expenses are limited to your policy deductible, which is only applicable in the event the insurance company is unsuccessful in defending the claim and agrees to a settlement. These potential claims come in many forms such as misdirection of freight, negligent carrier selection and improper release of goods to name a few. The common thread among them is that they are made against you by your customer.
Coverage Form: Claims Made vs. Occurrence
The coverage form is a fundamental part of your insurance policy that contains the insuring agreement, coverage conditions, exclusions, and policy definitions. The two most common types of Errors and Omissions (E&O) coverage forms used are claims made and occurrence. Let’s discuss herein how these forms differ and why it’s important to your business.
The essential difference between a claims made and occurrence form is the ‘trigger’. Under an occurrence policy, the occurrence of injury or damage is the trigger; liability will be covered under that policy if the alleged negligent act or error occurred during the policy period. Under a claims-made policy, the making of a claim triggers coverage.
A claims made policy form is considered the most preferred format for an E&O policy because it responds to current claims under a policy with limits to match your present-day needs. Simply put, a claims made form provides today’s limits for today’s claims. The limit of insurance you bought five years ago may be grossly insufficient to cover a suit brought today, when your company has grown and has considerably larger assets.
There are several differences to consider between these two forms and they warrant a thorough discussion with your insurance provider.
What No E&O Insurance Program Will Cover:
It’s important to note that an E&O policy is not intended to provide a remedy for protecting your financial assets from situations such as a receivables dispute or a voluntary financial accommodation to a client. Admitting fault and indemnifying a client for an error or mistake without direct approval from your underwriter could void your coverage.
When you consider purchasing Errors and Omissions insurance, or any insurance for that matter, remember that your insurance broker is there to answer your questions and provide the best possible solution for your needs. It is your right to ask for a policy that includes first dollar defense or the coverage form that best fits your business, be it claims made or occurrence, and to furthermore obtain a detailed explanation of the benefits and drawbacks of a given program. The crucial point for you, as the assured, to remember is that E&O coverage is intended to respond to legal claims against your business and as such, it is imperative that you take no action that would impede your insurance company from defending you. E&O insurance can save your business from catastrophic lawsuits, but it is not intended to be a checking account to reimburse you for payments made. Your insurance broker can and should help you to navigate the questions of obtaining the best coverage for your business and taking the proper actions in the face of a claim.