There are numerous liability risks present in any business. Even professional office settings have their risks. Some of these are not readily-visible in the way that injury or property damage risks might be. Sometimes, even your professional services can cause harm to others. In these cases, you will likely need professional liability insurance, otherwise known as E&O protection. What is this coverage? Is it all the protection you need for your business?
What’s E&O Insurance?
Many businesses don’t do manual labor. They don’t create physical products for their clients. However, they still provide services.
For example, accountants and CPAs might manage clients’ finances. Lawyers provide legal advice. Insurance agents help their clients invest money in coverage. They all have a duty to do their jobs correctly. If they fail to do so, they could cause harm to clients.
In professional settings, your mistakes might not cause someone a physical loss or injury. However, these mistakes could cause your clients to lose money and suffer other personal losses. The chances that you have of causing these problems are your professional liabilities.
It is E&O insurance that will help you cover the client’s losses in these cases. Coverage does not necessarily apply to losses to someone’s physical assets. However, it can apply to their financial difficulties resulting from your financial, clerical or other mistakes.
Examples of an E&O Claim
For example, maybe you are a financial adviser. You manage multiple clients’ investment portfolios. A client might sue you, alleging that you improperly managed their money. Or, a downturn in the market might cause investments to suffer, and clients might blame you. This is not a physical loss, but it is a blow to a client’s personal finances. Should they take action against the business, then E&O coverage might be able to help you out.
Your policy might:
- Help you pay settlements to the parties affected by your actions.
- Cover your legal costs that might arise from having to go to court and fight claims.
Even if you were not at-fault for any of a client’s losses, you still might have to go to court. Regardless of whether a lawsuit succeeds, the business’s finances could suffer. Therefore, even if you did nothing wrong, you still could face personal costs. E&O insurance can help alleviate that burden.
What Is Not Covered?
All the same, E&O policies won’t cover some risks that could impact the business, so exclusions will likely exist on your policy. For example, should you commit fraud or other illegal acts, your policy likely won’t apply.
Furthermore, two common types of commercial risks that E&O policies won’t insure are bodily injuries or property damage to others. These are frequent occurrences in many businesses. For example, a client might slip and fall in your bathroom. They could sustain injuries, encounter medical bills and blame you for the accident. They could even sue you. You’ll want insurance to protect yourself against such allegations. E&O policies won't provide it.
In these cases, you will need a commercial general liability (CGL) insurance policy. These policies are often the foundations of businesses’ liability insurance portfolios. Most people acquire them as part of their initial business owners policies, or BOPs. In most cases, you will need a CGL policy in place before you obtain E&O coverage. However, you usually buy the two elements separately.
Make Sure you Expand Your E&O Coverage
When you get an E&O insurance policy, it will only last for a certain number of years. Eventually, the policy will expire.
However, just because a policy ends does not mean that a client won’t sue you for accidents that happened in the past. Yes, statutes of limitations will likely exist. However, clients still often have a significant period to bring action against you. That means you might have to file an E&O claim quite some time after the problem itself.
The problem might arise, however, that the E&O policy you had when the accident occurred might no longer be active at the time you need to make a claim. Most policies won’t insure claims that happen before or after their terms. So, even if you have a new E&O policy, it might provide no help because the accident happened during the term of an older policy. Unless you adjust or extend your coverage, you might not have the right E&O assistance available.
To extend your E&O insurance after a policy term ends, ask your agent if you can get tail insurance. Tail coverage will essentially add an extended reporting period onto the policy. The period will kick in after the policy’s initial term expires. So, if you have a policy with an initial term of June 1, 2019 – June 1, 2020, and buy a tail for June 1, 2020 – June 1, 2025, then you’ll be able to make a claim on the same policy terms from June 1, 2019 to June 1, 2025.
E&O insurance can help any number of businesses protect their duties towards their customers. Talk to one of our agents about the benefits of getting coverage.