Being in business is, ahem, risky business. There are all types of potential liabilities your company must be insured against.
Every business requires a commercial general liability policy of some type. Small businesses may get by with the business owners policy (BOP), while larger outfits usually opt for the full CGL policy, which can offer any number of available coverage types to the insured.
When it comes to business professionals, there is a different policy that may be necessary. Insurance agents, attorneys, real estate agents, doctors and tax preparers, for example, require an errors and omissions insurance policy on top of the general liability policy.
All of the professionals above (and many more) are trusted to deal with large sums of money and to protect their clients against financial losses and medical problems (malpractice). So what happens if they make a mistake…after all, they are all human.
That’s where errors and omissions, also referred to as E&O insurance, comes into play. It is insurance designed to protect a professional against monetary damages arising from their negligence. Specifically, when they make a mistake that would lead to a financial loss of their clients.
Let’s look at an example (one of a million possible) of a potential E&O insurance claim for which liability would fall on an agent.
E&O Insurance Claim Example
Imagine that an insured calls his insurance agent to add a newly purchased car to his auto insurance policy. The agent takes down all of the pertinent information about the vehicle and notifies the insured that he will add the vehicle to the existing policy.
The agent hangs up the phone then immediately gets 5 more phone calls, one of which is a large claim the agent needs to work on immediately. A few hours pass and the agent forgets to add the vehicle in question to the policy.
Five weeks pass and the agent gets a call from the insured that has had an accident and totaled his new car. There’s just one problem; the vehicle isn’t listed on the policy and there is no coverage in place.
In this case, the insurance agent would be liable for the damages to the vehicle because he failed to secure coverage for that vehicle.
This is where the errors and omissions policy would be triggered. Subject to an insurance deductible; the E&O policy would reimburse the insured (or more likely the loss payee) for the financial damages that resulted from there being no coverage in place.