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An Introduction to Errors and Omissions Insurance | The Canadian Business Owner’s Guide to E&O Insurance

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What is errors and omissions insurance?

Errors and omissions insurance aka professional liability insurance. It’s that useful policy that saves your skin in case you make a mistake while delivering a service, fail to deliver on what you promised to do or fail to deliver at all.

What makes it different from general liability insurance?

General liability insurance only covers claims arising from physical injury to customers, damage to a third party’s property, or instances of libel or slander. If a member of your medical practice makes an error and a patient files a lawsuit, your general liability insurance won’t cover the legal fees and potential settlement arising from it.

One industry where errors and omissions insurance is highly valued is the investment industry. Investors often bring lawsuits against brokers and advisors for investments that go badly, even if there was a reasonable understanding of the risks.

That said, even when these claims are baseless, the cost of defending oneself against them can be quite high. As a result, a good errors and omissions insurance policy comes in handy.

In some cases, errors and omissions insurance is known as malpractice insurance. Malpractice insurance only covers bodily harm caused by professional negligence.

 

Who needs errors and omissions insurance?

It’s important to speak with your insurance advisor to determine your risk.

You may have professional risks that aren’t covered by your general liability insurance policy and not even know it. Make the effort and ask your advisor whether you need errors and omissions insurance because it’s better to be safe than sorry.

That said, there is no ambiguity when it comes to certain professions. The following professionals should definitely have errors and omissions insurance:

  • Doctors
  • Dentists
  • Chiropractors
  • Physical therapists
  • Lawyers
  • Accountants
  • Engineers
  • Financial advisors

 

E&O Insurance Policyholders Claims Examples
Doctors ●      Patient dies/requires life-saving surgery after a doctor fails to act on his complaints
Dentists ●      Dentist performs a sub-standard root canal
Chiropractors ●      Patient sustains a serious injury during a neck manipulation
Physical therapists ●      Client claims physical therapist didn’t provide entire treatment
Lawyers ●      Lawyer forgets to complete and file time-sensitive documents
Accountants ●      Client has to pay back taxes/interest due to their accountant’s error
Engineers ●      Structural issues are found in a building due to an engineer’s oversight
Financial advisors ●      Client loses a substantial amount of money due to bad investment advice

Table: Errors and Omissions Insurance Coverage for Different Professions

 

Even if a professional isn’t found responsible for a loss or injury (i.e. death in the case of a doctor or lost life savings in the case of a financial advisor), it is very expensive to defend oneself against a lawsuit. Errors and omissions insurance helps you cover these costs, up to your insured amount.

And the stakes don’t have to be as dramatic as someone’s life savings (or life).

Imagine a wedding photographer is responsible for capturing a couple’s special day. They take photos of the ceremony, the reception, the bridal party, the guests, the grand entrance, the first dance, the father-daughter dance…but they don’t take appropriate measures to back up their work.

A few weeks later they let the bride and groom know that they don’t have a single photo from their big day. Oops.

Even with all of the money in the world, there’s no way to go back in time to the wedding and take the photos again. While the photographer can certainly refund the fee, they can’t compensate for the emotional distress, and they may have to pay some kind of compensation.

As you can see, it’s not always obvious that you’ll need errors and omissions insurance until you sit down and assess your risks.

As we mentioned above, it’s smart to chat with your insurance advisor or a lawyer to assess your exposure to professional liabilities. Generally speaking, if you provide a service, depending on the stakes involved and the amount of money a client stands to lose, there is the chance claims can be brought against you whether they’re fair or not.

And keep in mind that it’s not just about making a mistake. If you don’t perform a service completely, well, or on time, there’s a possibility that clients will take legal action. So anyone from a personal trainer to a wedding planner to an app developer can benefit from errors and omissions insurance.

 

What are a few examples of situations where errors and omissions insurance can protect you?

You don’t have to stretch your imagination too far to picture a scenario where errors and omissions insurance comes in handy. In fact, you don’t even have to stretch your imagination at all. Instead, you can check out real examples like those provided by ENCON Group Inc, a Canadian managing general agent.

Scenario One: The Architectural Technician

architectural technician errors and omissions insurance

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A new building was being constructed next to a strip mall. The engineering firm in charge hired an architectural technician so they could coordinate their core drilling. This architectural technician had errors and omissions insurance. In an unlucky turn of events, they drilled into a water main, rupturing the device and flooding the area.

The situation went from bad to worse when a nearby restaurant about to have its grand opening was flooded as well. The restaurant wanted $250,000 in compensation. They reached a settlement and the legal fees came to $20,000.

Scenario Two: The Insurance Broker

small business insurance broker

Here’s an example where you can think you’ve done everything right only to have a miscommunication land you in some hot water.

An insurance broker, who had errors & omissions insurance, provided a commercial insurance policy for a client. The client’s business had multiple properties, and the insurance covered all of them.

The policy offered a blanket coverage amount for all of the properties, but the client thought that financial coverage was for each property.

So when a fire shut the business down for four months, the business owner wasn’t too pleased with his insurance and sued the broker for misrepresentation. A settlement was negotiated and the legal fees came to $32,000.

 

Scenario Three: The Doctor

doctor health practitioner errors and omissions

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A physician, who had errors and omissions insurance, treated a patient who had Alzheimer’s.

The family of the patient sued the doctor for $100,000 claiming that he hadn’t properly evaluated the patient or suitably treated him. When it was found that the doctor had done everything he was supposed to, the family dismissed the case, but in the end, the legal fees were $35,000.

As you can see from these examples, errors and omissions insurance doesn’t just cover you when you’re found responsible. It makes sure you aren’t financially ruined trying to prove you aren’t responsible, as well.

 


 

How does errors and omissions insurance help you grow your business?

Purchasing an errors and omissions insurance policy can prove useful before any accidents any happen.

If your business is part of a professional association, that organization may require a valid errors and omissions insurance policy.

There’s also the chance that some customers won’t want to work with you unless you have an acceptable amount of errors and omissions insurance coverage.

 

How much does errors and omissions insurance cost?

This depends on the nature of your work and the size of your particular business. Generally speaking:

  • Consultants start at $400
  • Engineers pay around $1000
  • Software developers start at $500
  • Photographers start at $300

 

For which segments does Zensurance offer errors and omissions insurance?

  • Consultants
  • Architects
  • Engineers
  • Photographers
  • Lawyers
  • Accountants
  • Software developers

 

Accidents Don’t Have to Equal Financial Ruin with Errors & Omissions Insurance

Accidents happen, but they don’t need to mean the complete destruction of a business. Assessing your company’s risks and purchasing the necessary amount of errors and omissions insurance should be a priority for any company offering a professional service or advice.


About Zensurance

Zensurance is Canada’s leading online commercial insurance broker. We offer a full range of insurance products to small businesses, with a particular focus on digitizing businesses and technology startups. We understand what it is to work with new technology, and know the most common risks of which you should be aware. Based on that (and a lot of analytics), we recommend the ideal insurance coverage for your business.

If you have specific questions about your business insurance, please visit us at www.zensurance.com or email us at info@zensurance.com and we will find the answers for you.

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Neya Abdi is a startup storyteller who covers innovation, marketing, business development, and customer engagement. Her limitless curiosity drives her to learn how organizations progress from idea generation to successful implementation in order to delight customers, make positive social contributions, and generate revenue. She lives in Toronto.

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