Any individual who offers services, advice, or financial assistance risks being sued. Lawsuits can be filed when a customer claims that he has received physical or personal harm, or financial, personal, or property loss as a result of a mistake made by a business professional. Professional liability insurance, also known as errors and omissions insurance (E&O), or professional indemnity in the UK, is designed to protect an individual or company against claims due to negligence or mistakes.
An errors and omissions insurance policy is mandatory for some professions. In the medical field, this type of policy is called malpractice insurance. Nations around the world generally require all medical facilities and professionals to carry malpractice coverage. This gives protection to the health care worker by providing legal assistance and claim coverage. It also protects a patient by assuring that money will be available to pay a claim if he is injured in some way through medical mistakes or negligence.
Other professionals may also be required to carry errors and omissions insurance, depending upon their jurisdictions. For example, some provinces in Canada, such as Ontario, Quebec and Saskatchewan, mandate E&O coverage for estate planners and financial consultants. In the UK, professional indemnity is required for financial advisors, mortgage intermediaries, and insurance brokers. In the US, requirements vary between states. Some insurance companies offer international policies to assist businesses who operate in multiple countries to comply with the insurance laws of each region.
Product or business liability insurance covers damages which may be caused by a product malfunction, or by an accident occurring on the business property. These do not cover E&O claims, however, so a separate policy is required. Errors and omissions insurance policies can come with varying deductible amounts which are agreed upon in advance. Some may include two deductibles; a maximum amount to be paid before the insurance coverage begins, and the portion of the claim to be paid by the professional if he is found to be at fault.
Errors and omissions insurance coverage includes protection of a professional’s personal assets against claims. If a suit is filed, the insurance company will provide attorneys and pay court costs associated with the suit, even if the charge is frivolous. If the professional is found to be at fault, the insurance company will pay the settlement. This also includes protecting a business against civil litigation due to the dishonesty of an employee.
While coverage exclusions may vary between jurisdictions, no errors and omissions insurance will cover deliberate criminal or dishonest acts. For example, if a professional who is the principle holder of the policy commits fraud, he will not be protected by the policy. If, however, one of his employees is dishonest, his company will be protected, but the employee will not. Deliberate property damage, intentional neglect, and claims against a person who causes bodily harm or death to another individual, are also excluded from coverage.
The types of E&O claims that are filed cover a broad range of issues, such as the loss of client data, accidental infringement of intellectual property rights, or confusion regarding commission fees. Professionals have also been sued on the grounds that the advice a consultant gave turned out to be harmful, perhaps because of a lack of understanding of the client’s needs. Any professional who offers a service, gives advice, or promotes a product should consider having errors and omissions insurance to prevent the devastating financial loss which can be incurred through civil litigation.