Errors and Omissions Insurance
Errors and Omissions Insurance (E&O) goes by many names, Professional Liability, Professional Indemnity Insurance and, in some industries, Malpractice Insurance. While there are many ways to describe it, it has one essential purpose for business professionals. It provides financial protection if an unhappy client claims your service wasn’t sufficient and it directly caused them a negative outcome (such as bodily injury or financial loss). These claims can arise out of alleged negligence, misconduct, misrepresentation, omissions, for example. Moreover, E&O Insurance provides coverage for defence costs even when you can prove there was no actual wrongdoing or guilty of the claim.
Now, you may be thinking, “my clients love working with me. They’d never file a lawsuit,” or “my business is small; there’s really no risk of a lawsuit.” Sadly, many small businesses learn the hard way that lawsuits are more common than they assume. Worse still, these lawsuits can be financially crippling, costing tens of thousands or even millions of dollars.
So how much does it cost to protect your professional actions?
Thankfully, it can be affordable given the extent of coverage it offers. Here’s the breakdown of how much E&O insurance could be for your business.
How much does E&O Insurance cost?
The cost of an E&O Insurance policy varies widely based on your business. On average, a small business owner could spend around $250 – $500 per year for an E&O insurance policy.
The following factors are typically taken into consideration when determining E&O costs:
- Industry and type of business: In every profession will have different exposures to risks. For example, a large financial management firm will have different risks compared to an independent consultant. Data from previous E&O claims within your industry help insurance companies to determine how likely you are to submit a claim and how expensive they can potentially be to resolve.
- Location: Specific professions require E&O Insurance by law, and the limits may vary depending on each province.
- Years of experience and employee training: More experience helps to reduce risk. If you have many years of experience in a profession, it’s more likely you have a handle on the ins and outs of your responsibilities. The same goes for your employees – if you provide training to help them better their skillset, your business is deemed a lower risk (from an insurance perspective).
- Business size: The size of your business helps to determine the size of a potential lawsuit. For example, a large company that works with six-figure contracts could be liable for a lot more in settlement fees than a small business charging far less for their services.
- Revenue: A higher income correlates to the number of customers your business is dealing with, and more money can come with a higher risk of lawsuits.
- Contracts: Many E&O lawsuits arise from a breach of a contract. Contract agreements written in a way that avoids ambiguity can decrease your liability exposure.
- Previous claims history: If you’ve had a history of claims, you may be deemed a higher risk to insure than a similar business with no claims history.
E&O Insurance coverage limits
E&O policies tends to come with five standard coverage limits:
- $1 million
- $2 million
- A higher limit could be obtained if needed.
These limits are the maximum amount you can be paid for each claim and will cover expenses such as your legal defence costs, judgments, and settlements.
These options are available for all business types, but you should ensure you’re adequately covered based on your risk. During the quoting stage, we’ll determine a coverage limit that’s right for you based on the information about your business. Additionally, you can reach out to one of our brokers for their professional advice.
Common claims scenarios
To get a better understanding of the potential costs of various E&O claims, here are three examples from different industries:
Frequently asked questions
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