As a small business owner, you’re certainly aware that you need some basic insurance coverage to protect your assets from predictable risks. So you probably have commercial liability insurance, property insurance, business auto insurance and — if you have employees — worker’s compensation insurance in place. But if you are in a service industry, these standard coverages may not protect you from all of your exposures. You may need errors and omissions, or E&O insurance as well.
What Is E&O Insurance?
E&O insurance is a type of liability insurance that protects your assets in the event a client claims a service you provided was deficient in a way that caused them personal or financial harm. Also known as professional liability or malpractice insurance, it is standard coverage for professional service providers such as doctors, dentists, and attorneys. However, many other types of businesses, from web hosting companies to financial planners and tax preparers, may have exposures in this realm as well.
Imagine, for example, that you own a web hosting company and your servers crash. Dozens of clients websites go dark, and they lose thousands of dollars in sales. Who’s responsible for reimbursing them for their losses? Chances are they’ll say you are. And if you don’t come up with the money, they’ll take you to court.
What Does E&O Insurance Cover
Most E&O policies are written to cover the cost of being sued. That typically includes defense and court costs and the amount of any settlement or court-ordered judgment. Remember, even if a client’s claim is baseless, you may need to spend tens of thousands of dollars in attorney’s fees to defend your case. But if you have E&O coverage, your insurance will pick up the tab.
Who Needs E&O Insurance?
E&O insurance is important coverage for any business that provides a service for a fee. In addition to licensed professionals such as doctors, realtors, and attorneys, this includes:
- Insurance agents
- Commercial printers
- Athletic trainers
- Wedding planners
- Landscape designers
- Interior decorators
- Psychological counselors
- Consultants of many types
- Pet Groomers
- Employment agencies and recruiters
- And many more
Why is E&O Insurance Important?
Simply put, E&O insurance is important because anyone can make a mistake. Whether you do something that causes harm (an error) or don’t do something that results in harm (an omission) if you’re liable for damages, the client will expect you to pay.
Suppose, for example, you’re paid to groom a client’s prize-winning poodle who’s set to compete in a dog show the next day. The phone rings just as you’re finishing up, and as you reach to answer it, your clippers veer off a little bit to the left. The dog isn’t harmed, but he’s no longer “show ready,” and your error can’t be fixed. The client could sue you for the amount prize money the dog might have won.
Similar situations can happen in any industry. A hairstylist accidentally over-processes a client’s hair. An employment agency fails to complete a background check, and an employee it cleared embezzles company funds. A fitness instructor recommends exercises that injure a client’s back. Any of these mishaps can result in a lawsuit that E&O coverage would pay to defend.
How Much Does E&O Insurance Cost?
E&O insurance is very industry specific, so costs vary a great deal. For doctors and other healthcare professionals, they can range from $5,000 to $50,000 per year and up. But for most small business owners, the cost will be nowhere near that high. Underwriters base the cost on the amount of perceived risk. If you are in an industry where few claims are made and payouts are usually low, your costs should be lower than an industry where claims are common and payouts high.
At The Carmoon Group, we’ll work with you to create a comprehensive business insurance program tailored to your needs. We’ll review your risk profile, discuss your financial constraints, and design coverage that provides the best possible coverage at the most reasonable cost. So, give us a call today to schedule your annual insurance review, or contact us online. We know you’ll be pleased with the result.