Errors and Omissions vs Professional Indemnity Policies
Errors and omissions are a type of insurance policy that protects against negligent or wrongful acts that might cause injury, damage or loss. Every professional should carry some insurance cover for their work if they make an error that leads to loss to a client, customer or patient. It’s important not to eat into your profits by over-insuring, however. For this reason, many professionals purchase an errors and omissions policy rather than the more comprehensive professional indemnity policies.
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Professional indemnity policies typically include three types of coverage: Errors and omissions, general liability and product liability. Many indemnity policies do not cover for errors and omissions, which standalone policies come in.
What are Errors and Omissions Policies?
Errors and omissions are insurance forms that pay for damages incurred because of a professional error. It covers mistakes made in a professional work environment, such as errors resulting from poor design, bad advice or mishandling of client information. Professional indemnity companies private specialist insurers typically offer errors and omissions insurance. It can also be purchased from other insurers who offer professional indemnity cover, such as the Financial Services Compensation Scheme (FSCS).
However, errors and omissions insurance does not cover all negligence or wrongful actions. It typically does not cover damages resulting from willful, criminal or malicious acts. It also will not cover damages, losses or injuries resulting from an intentional professional disregard of their responsibility to provide the client with the service they are paying for. Additionally, errors and omissions policies typically do not cover cases in which a person accuses another professional of making an error that directly led to an injury or loss; this requires a separate lawsuit.
Errors and omissions cover costs relating to:
- Negligence: allowing the client or patient to suffer injury, damage or loss (see below for examples)
- Breach of duty: breach of duty concerning the profession, which may include failure to do something that you were required to do by law or regulation, failing to provide services offered by the policy; and failure to meet a standard of care expected of you by your profession
- Inaccurate advice: where you have knowingly or unknowingly provided wrongful advice
Costs covered include:
- Attorney fees
- Court costs,
- Administrative costs to put your defense together
- Settlements and judgments
Errors and Omissions do not cover:
- Loss due to natural disasters: earthquakes, floods, fires, etc.
- Negligence or breach of duty that you have committed outside your workspace
- Products or goods, including damage caused by them or by the way they are delivered to customers
- Loss of goods owned by you (such as your tools). You can insure against this loss with a separate goods policy.
- Insurance against loss of or damage to your property includes works of art and antiques. You can take out an insurance policy against theft or damage from a third party with an excess
Do I Need a Professional Indemnity Policy?
If you are worried about risks not covered by errors and omissions policies, it’s important to ensure them with other policies. A professional indemnity policy will cover:
- Products liability
- Patent, copyright and/or trademark infringement
- Legal disputes in court. The policy will cover the cost of hiring a lawyer and taking legal action against someone who has harmed you or your business.
- Professional liability is not classed as errors and omissions.
To work out whether your policy covers the type of errors and omissions you have sustained, you will need to look at your policy’s “exclusions” section. This will ensure that you have read your policy carefully and have understood what is excluded from it. In addition, if you believe some areas may fall outside of your policy, it’s essential to consider whether you can afford to pay for the risk yourself. If your business depends on the income generated by this type of risk, it may not be worth insuring them at all.
A professional indemnity policy has a much broader scope of coverage than an errors and omissions policy but will not always be the best choice. Given that the coverage is broader premiums are much higher. If you do not see the benefit in paying to ensure errors and omissions do not cover the risks, it’s recommended that you purchase this. Businesses’ wanting to ensure the full range of risks they’re exposed to will need to purchase a professional indemnity policy.
Find out more about the importance of insurance here.
Other useful links about Business Insurance:
Professionals Insurance
Project Manager Insurance
Property Manager Insurance
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