Owning a business is associated with the possibility of several liabilities since making mistakes is part of human nature. Some clients can sue your company based on those mistakes resulting in substantial financial burdens on your business. As such, the aim of insurance covers the general liability, and the errors and omissions insurance is to protect your business from unplanned financial expenses.
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What are errors and omissions insurance?
The errors and omissions insurance is liability insurance that protects a business and its workers from any mistake made while providing products or services. For example, when the advice given to a firm by a financial advisor costs the firm to lose a large sum of money, the firm can file a lawsuit. The errors and omissions insurance will help cover the settlement costs, attorney fees, and court fees.
The coverage of the insurance is, however, limited to the amount stated in the contract. If the lawsuit costs your business more than the specified amount, your business will be required to pay the additional charges.
What is covered by errors and omissions insurance?
- The insurance covers:
- Charges of business negligence.
- Unappealing results from any advice offered to a client=
- False statements intentionally made by the client.
- Delays in delivery or failed delivery
- Personal injury to your business through slander
- Any errors and omissions made by your business
- Unfair dealings between your business and client
Some areas not covered by the errors and omissions insurance include:
- Any intentional errors and violations of the law made by your business
If you or your employee deceives a customer or breaks the law, it will have to cover the lawsuit’s legal expenses. - Injuries at the workplace to either a client or an employee
In case an employee is injured in the workplace, he or she requires a worker’s compensation insurance for medical care support from the employer. A client injured within a company’s grounds also needs general liability insurance for medical care cost support. - Business or client property damages
Property damages can be in the form of theft or destruction. Any damage to a client’s property within the company’s grounds, such as a car parked in the company’s parking lot, will not be covered by the errors and omissions insurance. The same applies to any property belonging to the business. Compensation for damaged business property is done by the business owner’s policy (BOP) coverage. - Company vehicles
The insurance also does not cover company vehicles that get into an accident while running either personal or business errands. - A lawsuit involving employee harassment or discrimination
Your business is not protected from any lawsuits filed by an employee due to unfair work termination, workplace harassment, and any form of discrimination, such as one based on race or gender.
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Who needs it?
Lawsuits place a substantial financial burden on your business. The lawsuit’s intricacies will determine the actual expenses your business might incur, but the total legal fees usually range from $10,000 to $100,000.
Any company providing products and services, whether a startup or a billion-dollar organization, is therefore eligible for an errors and omissions insurance cover. However, it is common in specific fields such as engineering, medical, architectural, accounting, and technical fields. Web developers are likely to have the coverage in the specialized area mainly because the software can malfunction or break down, leaving clients unsatisfied.
How much does an errors and omissions insurance cost?
The average cost of errors and omission insurance is $715 every year. The price ranges from $500 to $1000 but can be as low as $400 for some small businesses. The premium for the errors and omissions insurance varies from business to business, depending on several factors. The location of your business and the industry’s risk are the two main determinants of the insurance costs. Other determinants include a liability claim history and coverage limits.
Businesses that belong to an industry associated with high risks are likely to pay more premiums. For example, building design firms are expected to pay more premium than accounting firms because when a building design project does not go as planned, the client loses a substantial amount of money. As a result, building designing firms can pay more than $1500 annually, while accounting firms pay an annual premium of $400.
The location of your business will also determine the amount of premium you pay. Companies located in big cities like Los Angeles and New York pay more dividends than those found in Eugene, Oregon.
A business previously sued by a client due to negligence or any other mistake covered by the errors and omissions insurance will pay more premium than a business with no history of liability claims.
A business with a higher coverage limit will also have higher premiums. Errors and omission insurance coverage limits range from $250,000 to $2 million. A company with a coverage limit of $1.5 million will pay more premiums than one with a coverage limit of $500,000.
Your business can lower the coverage costs by putting in place measures to minimize the risk of a claim. Ensure that your employees have adequate training and skills for their work area and occasionally get reviews from your clients about the services you offer. Such measures will also create trust between you and your clients.