Errors and omissions (E&O) insurance is a type of professional liability insurance which is designed to provide liability protection to professionals in connection with the professional services that they provide.The other type of professional liability insurance is medical malpractice insurance and is designed to provide liability protection to medical professionals such as physicians and surgeons.
E&O insurance policies pay for damages and defense costs in connection with allegations of negligence by a third party.Limits of insurance are applicable to the amount of damages and defense costs that an insurance company has to pay. Available policy limits generally vary from $100,000 to $5,000,000. The most common E&O policy limits are $1 million/$1 million, which means that the carrier would pay a maximum of $1 million for each claim and a maximum of $1 million in a single year, regardless of the number of claims or claimants. Errors and omissions premiums vary directly with the policy limits.
Some E&O insurance policies provide additional coverages, such as unlimited defense costs, personal and advertising injury, and supplementary payments.
What are some common types of exclusions in an E&O insurance policy?
E&O insurance policies are usually structured to provide coverage for errors or omissions made in the rendering of professional services, subject to certain exclusions. Policy language and coverage vary from carrier to carrier but some of the most common exclusions include the following:
- Bodily injury and property damage - these coverages are instead provided under general liability policies
- Insured vs. insured - E&O insurance policies typically exclude claims between two parties who are insured under the same policy
- Dishonest, criminal, fraudulent or malicious acts
- Bankruptcy or insolvency of any party
- Liability of others assumed under contract
- Warranties, guarantees, cost estimates, or breach of contract
- Infringement of copyright, trademark, patent, or trade secret
It is important for professionals to read the entire E&O insurance policy, including all endorsem*nts, before initiating the coverage to make sure that the coverage exclusions and limitations are well understood.
What's the difference between an occurrence and claims made policy form?
Most E&O insurance policies are issued under a claims made form. A claims made policy covers claims reported during the policy period, as long as the claim was incurred after the retroactive date. The retroactive date is usually set as the first day of coverage of the first claims made policy ever purchased and should not be changed at policy renewal. The professional is covered under a claims made policy as long as he/she continues to renew the policy. However, if the professional does not renew the claims made policy and a claim is subsequently reported, no coverage will be available even if the claim was incurred while a policy was in effect. To remedy this situation, a tail endorsem*nt is available to be purchased by professionals who retire or otherwise stop working.
An occurrence policy is simpler as it covers claims incurred during the policy period, even if the claim is reported after the policy expires. Occurrence policies are widely used in other lines such as automobile and homeowners insurance.
What's the difference between a general liability and an E&O insurance policy?
A general liability policy is designed to provide coverage primarily for bodily injury and property damage claims and is usually purchased by insureds who have an office space or who visit clients. An example of coverage provided by a GL policy is a client who visits the insured's office and becomes injured while on the premises. Another example is the insured who visits a client and ends up causing property damage. However, general liability policies provide no coverage for professional services rendered by the insured. Coverage for such professional services is available under errors and omissions insurance policies.
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