With the shift to a service-based economy, consumers are demanding accountability and standards have become more stringent. And as a result, many companies have learned just how costly an error in judgment can be.
“One of the things that changed in our country as we went from manufacturing-based to service-based is that the acceptable standards of care are being ratcheted up over time,” says James Misselwitz, vice president at ECBM Insurance Brokers and Consultants. “The reality is that people who never thought they had errors and omissions exposures may have the potential for exposures developing around them and in their business activities.”
Smart Business spoke with Misselwitz about how E&O and professional liability insurance coverage can help you avoid legal trouble.
Who needs professional liability or errors and omissions insurance?
Professional liability insurance and errors and omissions insurance are basically two sides of the same coin. Professional liability insurance has long been recognized with the public as for those professionals who are held to the highest standards of care, such as doctors, lawyers, architects and engineers.
E&O is reserved for those who have similar requirements in terms of care, but society has not yet recognized them as having the same professional requirement for that standard. Some examples are appraisers, brokers, real estate agents, marketing researchers and exterminators. Those professions still have a professional standard with which they must comply, but society hasn’t held them to the same standard as the other professions. So E&O is used in one instance and professional liability in the other.
What are the differences in coverage between professional liability and E&O insurance?
Professional liability is likely to include covenants that will apply to the professional standards of care for their actual patients or clients. Bodily injury and property damage, even economic loss, will be covered by a typical professional liability policy for a physician, architect or engineer.
Professionals with errors and omissions coverage would be more underwritten toward the economic loss that they might cause as a result of failure to perform. Economic loss is the driving factor in errors and omissions exposures, and in the professional liability arena, the danger to people is the driver.
What are some standard E&O risks?
The classic dangers of providing service to others for a fee are twofold: indemnity and defense costs. Indemnity is a fancy word for making someone whole or returning them to the state that they were prior to the service or failure of service. Defense costs are the legal fees and bills you pay to defend yourself in the event that there is an allegation against you. Insurance policies can provide protection for these events.