As any businessperson understands, there are consequences to making mistakes. After all, if your mistake results in your client suffering a loss they will expect you to compensate them as a demonstration of their good faith in entrusting you with their business. Anyone can make an error, but when it occurs in a business setting there is a likelihood that it could wind up being an issue to be settled by a judge in a court of law.
This example demonstrates why most companies that find themselves in such a position carries a policy that provides relief from claims of errors and omissions. What is errors and omissions (E&O) insurance? It is a professional liability insurance policy that protects companies and individuals against claims made by clients for inadequate work or negligent actions.
Fighting claims of alleged or actual negligence
E&O insurance often covers court costs along with any settlements up to the amount specified on the insurance contract. Lawsuits are quite common in the financial industry, and regardless of just how baseless a claim may be there is still a good chance that it may end up in front of a judge. Clients sometimes sue an advisor or broker after an investment goes sour, even though they were made aware that the risk existed and were well known within the guidelines established by the client.
In most of these cases, even if a court or arbitration panel finds in favor of a broker or investment advisor, the legal fees can be very high and that’s what makes having E&O insurance so vital in these types of situations. Any person or company that has had numerous litigation problems in the past will certainly have a higher underwriting risk and will therefore find that E&O insurance will be more expensive or less favorable in its terms as a result.
What is errors and omissions insurance? It is the only insurance coverage that is strongly recommended in order to protect your business from claims alleging negligence from your professional services, including failing in your “duty of care”, giving incorrect or faulty advice, or making mistakes that result in damages to your client.