Professional Liability / Errors & Omissions Quotes For Small Business

Any small business that provides a professional service should purchase Professional Liability / Errors & Omissions Liability insurance. In addition, such a policy may be required under contract with a customer or may be a prudent sales tool to provide assurances to customers. A Professional Liability policy will protect the small business owner when he or his employee makes a mistake in the delivery of professional services that results in a monetary loss to the customer. For some small businesses, there is even a greater chance that a Professional Liability policy will respond to a lawsuit as compared to a General Liability policy.

A Professional Liability / Errors & Omissions Liability policy responds to lawsuits alleging purely economic damages arising out of wrongful acts, errors, or omissions in the performance of professional services for a fee. The most common allegations in these types of lawsuits include the following:

• The service was never provided at all or was not provided in time to be of benefit.
• The service was not performed in accordance with generally accepted industry standards.
• The service was not performed according to the terms of a written contract.
• The mistake or failure has resulted in a loss of reputation to the customer.

The Errors & Omissions Liability policy will provide an attorney for legal defense and will pay up to the policy limit in the event of settlement or adverse jury verdict.

Traditional Professionals--Malpractice Insurance And Professional Liability Insurance

The terms Professional Liability insurance and Errors & Omissions Liability insurance are now used interchangeably by the insurance industry even though this was not the way things first started out. In historic terms, the law only recognized medical practitioners, lawyers, engineers, architects, and accountants as professionals due to their extensive training, licensing, and regulation by their industries. Medical practitioners such as doctors and dentists were covered by Malpractice Insurance and the other professionals were covered by Professional Liability insurance.

New Tier Professionals--Errors & Omissions Insurance (E&O)

Later, the law began to recognize a new tier of professionals as their industries began to provide for varying degrees of training, licensing, certification, and regulation. Examples include insurance agents, real estate agents, technology professionals, teachers, stockbrokers, barbers, beauticians, allied professionals, consultants, title searchers, home inspectors, employment agencies, billing services, interior decorators, property managers, mortgage brokers, law enforcement officers, freight forwarders, etc. These new tier professionals began to be covered by Errors & Omissions insurance (E&O). However, many insurance carriers also use the term Professional Liability insurance when insuring these professionals.

Professionals Held To Higher Standard Of Care

Regardless of whether the professional is traditional or new tier or whether the policy is called professional liability or errors & omissions liability, the fact remains that professionals who advertise or claim to have special skills or expertise (as evidenced by their license or certification) are held to a higher standard of care under the law. It is also important to note that any professional, whether the owner, employee, or even a subcontractor can make a mistake at one time of another which could result in large damages to the client.

Professional Liability / Errors & Omissions Claim Examples

• A lawyer who is defending his client in a lawsuit does not properly suspense an important deadline and as a result fails to file an answer in a timely fashion. As a result, his client loses the lawsuit by default judgment and sues the attorney for damages.
• An engineer recommends a particular HVAC system as adequate in the construction of a commercial building. After the construction is finalized, it is discovered that the HVAC system does not adequately heat and cool the building. The HVAC system must be replaced with new units and duct work. The engineer is sued for damages.
• Software programmer is hired to create custom code that will complete an e commerce transaction in 10 seconds. The final version of the code takes an average of 30 seconds to complete the transaction. The buyer sues claiming damages due to lost customers on his e commerce website who abandoned the purchasing process due to frustration.
• A wedding photographer is hired to film a wedding and reception at an out of town location. The photographer's car breaks down and he is not able to arrive on time to film the wedding. The couple sues for damages.
• A convention planner books a conference hall for a trade show exhibition. The trade show vendors travel from out of town to start their set up the morning before the trade show and find out that there was a scheduling conflict and that the conference hall is not available resulting in cancellation. The trade association must refund the vendor entry fees and is out of pocket for lost revenues and other expenses. They sue the convention planner for damages.
• A commercial mailing house mails 50,000 catalogs to the wrong mailing address due to a clerical error. The catalog company sues for the cost of the catalogs and lost profits due to missing the critical selling season.

General Liability Policies Don't Cover Many Lawsuits Resulting From Performance Of Professional Services

Many small business owners make the mistake of assuming that their General Liability policy will cover almost all lawsuits arising out of their performance of professional services. This is not the case as the General Liability policy only covers lawsuits that allege bodily injury, property damage, personal injury (slander, libel, etc.), and advertising injury. Many of the lawsuits that arise out of the performance of professional services for a fee involve a purely financial loss to the client with no associated bodily injury or property damage. The examples listed above provide ample evidence of this fact.

Likewise, the Professional Liability / Errors & Omissions Liability policy is not intended to cover the types of lawsuits that are typically covered by a General Liability policy. Professional Liability / Errors & Omissions policies generally contain exclusions for bodily injury, property damage, personal injury, and advertising injury types of lawsuits.

However, some General Liability policies do contain a "professional services" exclusion which removes all coverage for certain claims even if resulting from bodily injury or property damage. Such an exclusion is commonly found in General Liability policies for medical practitioners, architects, and engineers. As a result, some Professional Liability / Errors & Omissions policies must be customized to cover such bodily injury and property damage lawsuits.

Analyze Professional Liability / Errors & Omissions Liability Policies Very Carefully

Professional Liability / Errors & Omissions policy forms are not standardized and the language will vary greatly from one insurance carrier to the next. For this reason, the language must be very carefully analyzed for pitfalls and exclusions. Careful attention must be paid to the definitions of "wrongful act" and "professional services" to make sure that coverage is provided for the most likely claims for a particular small business.

Professional Liability/ Errors & Omissions liability insurance forms are written on a "claims made" basis. Under "claims made", in order for coverage to apply, the policy (or a renewal thereof) must be both in force at the time of the wrongful act (or it must occur after the "retroactive date") and at the time the claim is made. This further complicates matters and careful attention must be provided to properly set the "retroactive date" as wrongful acts committed prior to the "retroactive date" will not be covered. If possible, it is best to set the "retroactive date" to the first date that the small business began to offer the services. At each policy renewal, it is critical to make sure that the "retroactive date" continues to be set at the same date that it was set on the first policy. Small businesses that shut down their operations should consider purchasing an "extended reporting period" option so that coverage would exist for claims that may be filed after the shut down.

It is also critical to evaluate if the Professional Liability / Errors & Omissions Liability policy provides for "legal defense outside of the limits of liability" as opposed to legal defense being included inside the policy limits. Obviously, it is better to have legal defense outside of the policy limits so that any legal defense costs do not erode the remaining policy limit that is available to pay for a settlement or adverse jury verdict.

Common policy exclusions under an E&O policy include the following:

• Dishonest, fraudulent, knowingly wrongful acts.
• Receiving personal profit to which the insured if not legally entitled.
• Copyright, trademark, trade name, and patent infringement.
• ERISA violations.
• Bankruptcy or insolvency.
• Acts, errors, or omissions prior to the retroactive date.
• Prior or pending litigation.
• Violations of state or federal anti trust laws.

All policy exclusions should be carefully reviewed with any areas of concern being open for negotiations with the underwriter. Many underwriters will consider deleting an exclusion for an additional premium charge.

Most Professional Liability / Errors & Omissions Liability policies automatically cover the business entity itself and respective officers, directors, owners, and employees while acting within the scope of their official duties. Independent contractors may be covered under some policy forms if there is a contractual obligation to provide coverage for them and if they are working solely on behalf of the insured at the time of the alleged wrongful act.

Risk Management Controls To Prevent Professional Liability / Errors & Omissions Liability Claims

The following risk management controls can help to prevent claims in the first place:

• Never orally promise a service or details about a service that can't be delivered.
• Always provide a well written contract that specifies the details of the transaction in terms of description of the service, time framework for completion, specifics of the service, what the service does not include, limitation of liability clause, no liability for consequential damages clause, and an escape clause for events beyond your control.
• Implement backup plans for unexpected contingencies.
• Implement new employee training, ongoing training, supervision, written process documentation, and quality control procedures.

Cost Of Professional Liability / Errors & Omissions Insurance

The cost of a professional liability / errors & omissions policy varies according to type of small business to be insured, revenues, number of employees, loss history, risk management controls, and the strength of written services contract.

Policies are typically based on a rate per $1,000 of revenues but are subject to a minimum premium. The minimum premium varies depending on the risk factors of the particular small business type but can range from $500 to $2500.