You’re looking to safeguard your business with a commercial insurance policy. Of course, it’s a wise move. But with all these acronyms and similar-sounding insurance policies, you mustn’t get mixed up with the coverage you think you need and the coverage that you genuinely need.

On that note, let’s break down D&O insurance and E&O insurance – only one letter separates them, but their coverages are notably different. First, let’s review what they cover and whether your business needs D&O insurance, E&O insurance, or both.

E&O Versus D&O – What Do They Mean?

D&O and E&O are acronyms for two liability insurance policies. D&O insurance stands for directors’ and officers’ insurance, and E&O insurance stands for errors and omissions insurance.

A confused businesswoman

Other names can also know these two policies: D&O insurance is commonly called management liability insurance. E&O insurance is sometimes known as professional liability insurance, or in the case of the health care industry, malpractice insurance.

What Is E&O Insurance?

Errors and omissions insurance provides financial protection to businesses that have made an error (or an alleged error) in a professional service or in the advice it offers, causing a financial loss to a third party.

Here are some examples of claims that may be covered through E&O insurance, covering both legal defence costs and settlement fees: 

  • Misconduct in service
  • Erroneous work or advice
  • Negligent behaviour
  • Omitting important details in service or advice
  • Failure to provide service as promised

What Is D&O Insurance?

The purpose of directors’ and officers’ insurance is to provide financial protection to a company and its directors and officers that have been sued due to an error (or alleged error) they made while managing a company.

D&O insurance can cover a variety of claims. Here are some situations where a D&O insurance policy could provide protection through legal defence costs and damages:

  • Unfair business practices
  • Making decisions without the necessary authority
  • Negligent behaviour
  • Misleading statements or inaccurate reporting
  • Acts of harassment or discrimination
  • Breach of legal or fiduciary duties
  • Conflicts of interest
  • Release of non-public information
  • Poor management of funds
  • Bad investment decisions
  • Employment related claims

Does My Business Need E&O Insurance, D&O Insurance, or Both?

Many small businesses may think they’re adequately covered by having errors and omissions insurance, but that is not always the case.

While D&O policies are sometimes thought to  cater to large, publicly-traded firms, they may be just as important for the smaller, private firms . If you run a small- to medium-sized business that has a board of directors, or you’re running a venture-backed startup, D&O insurance should be considered.

What Are The Differences Between D&O and E&O Insurance?

The two policies don’t really overlap in the coverage they provide:

  • The claims can come from different parties

D&O claims often come from employees but can also be made by an extensive list of sources, such as regulators, competitors, shareholders, and creditors. On the other hand, E&O claims are generally made by third parties – namely, clients.

  • Only D&O insurance covers some criminal trial costs

D&O insurance can cover the defence costs in criminal trials if you’re found to be not guilty. However, E&O does not offer comparable coverage for employees.

What’s an Example of How D&O and E&O Insurance Can Protect My Business?

Let’s put this into context with a couple of examples of how each type of insurance can protect you. First, consider this D&O coverage example:

Say you’re the CEO of a publicly-traded company that is struggling to keep afloat in a tough economic environment. Shortly after reporting the company’s latest quarterly financial results to shareholders and lenders that showed your firm is managing to weather the challenges it faces and is reporting moderate growth, the company files for bankruptcy protection. Your shareholders and lenders are outraged, and launch a lawsuit against you and your board of directors for misrepresentation and making a misleading statement. In this scenario, a D&O insurance policy could kick in to provide you and the board with financial support for your legal defence.

Now, let’s consider the following example for how E&O insurance can protect you:

Suppose you are an operations consultant advising a company on how to launch a new product in the market. Your customer is a small business and relies on this new product launch to keep them afloat.

Based on your advice, the business owner makes a series of changes in the launch plan. The launch fails, and the business goes bankrupt. The owner blames you for bad advice and alleges you are at fault for their business going bankrupt and losing $100,000. In this case, it’s an E&O policy that would provide you with coverage for your legal defence and the potential settlement.

Where Can I Get E&O and D&O Insurance?

Zensurance offers both customized E&O and D&O insurance policies and many other types of insurance to ensure your business is adequately protected from the risks you face.

Speak with one of our licensed brokers and let them help you determine what insurance coverage your company needs.

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