Errors and Omissions Explained: How to Protect Your Business from Costly Mistakes
According to a study by the consulting firm Gartner, by the year 2023, 90% of organizations will have experienced at least one instance of a business-critical application failure due to an error or omission in their software code.
Errors and omissions (E&O) insurance is a type of professional liability insurance that protects businesses and professionals from lawsuits filed by clients who claim that they have suffered financial losses as a result of professional negligence or mistakes. In other words, E&O insurance provides coverage for claims of errors or omissions in the services provided by a business or professional.
The Importance of E&O Insurance in Today’s Business Environment
In today’s litigious business environment, it is not uncommon for clients to sue professionals for alleged errors or omissions. In fact, according to a recent survey conducted by insurance provider The Hartford, over 40% of small businesses will experience a property or liability claim in the next 10 years. Of these claims, nearly one-third are related to professional liability issues.
Common examples of E&O claims
- Accountant providing inaccurate financial advice to your clients. As a result, they file a claim against you.
- Interior designer using the wrong colors to repaint a client’s room. When your client sees it, they file a claim against your small business for breach of contract and to pay for the materials to restore the color.
- Real estate agent forgetting to include important details about a home. The buyer files a claim against your real estate firm for negligence.
- Marketing consultant providing advice that caused your client to lose money on their product or service. They file a claim against your marketing company as a result.
- Tax preparer making a calculation error which caused your client to have to pay a penalty. As a result, they sue your accounting firm.
- Public relations firm creating a communication strategy for another business to improve its reputation. Instead, it causes a negative reaction and the business owner sues after seeing a decrease in sales.
The Cost of E&O Claims and the Benefits of Having E&O Insurance Coverage
Furthermore, E&O claims can be costly, both in terms of legal fees and potential damages awarded to the plaintiff. According to a report by insurance provider CNA, the average cost of a professional liability claim for small businesses was $50,000, while larger businesses can face claims exceeding $1 million. Without E&O insurance coverage, a business or professional may be forced to pay these costs out of pocket, which can be financially devastating. Even if a business or professional is found not liable, the cost of legal defense can be significant.
Having E&O insurance coverage can provide peace of mind and financial protection for businesses and professionals. It can also help businesses maintain their reputation by demonstrating that they are committed to providing quality services and taking responsibility for any mistakes or oversights.
Other Forms of Essential Coverage for Businesses
In addition to E&O insurance, there are other forms of coverage that can provide essential protection for businesses.
- Employment practices liability insurance (EPLI) protects businesses of all sizes against claims related to discrimination, harassment, and wrongful termination.
- Similarly, directors and officers (D&O) insurance protects the personal assets of directors and officers from lawsuits related to their actions or decisions made on behalf of the business.
At Basin Pacific Insurance, we strive to educate our clients on the various types of coverage available to them and help them make informed decisions about their insurance needs.
Conclusion: Investing in E&O Insurance for Peace of Mind and Financial Protection.
In conclusion, E&O insurance is an essential form of coverage for businesses and professionals who provide services to clients. At Basin Pacific Insurance, we offer customized E&O insurance solutions that are tailored to the unique needs of our clients. Contact us today to learn more about how we can help protect your business and mitigate risk.
Should you have any questions regarding your current coverage or want further information on E&O insurance offered by Basin Pacific Insurance, click here, or contact us at (509) 765-4785.
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