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Errors & Omissions vs. Professional Liability: Is There a Difference?

Before you purchase business insurance get up to speed on errors and omissions insurance (E&O) – a key type of professional liability insurance.


Running a business comes with certain responsibilities. For one, you are responsible for treating your employees properly and respectfully. You have a responsibility to the community to operate your business ethically and within the bounds of your local, state, and federal laws and regulations.

One of your biggest responsibilities is to your clients. If you are a service-based business, you need to offer the best service you can. However, there may be times when your service is not up to par or when you make an error that you shouldn’t. You will need liability coverage to protect you from the financial fallout in those cases.

This protection comes in the form of errors and omissions insurance or professional liability insurance. For the most part, these two terms are used interchangeably, including by insurance companies themselves. Whatever name you choose to use, E&O and professional liability coverage protect you from claims by clients that an error your business has made resulted in a loss.

 

Errors & Omissions and Professional Liability are the same

There may at one point have been a difference between E&O and professional liability. However, the two terms have merged over time, and they mean the same thing. In the past, professional liability tended to refer to industries where people considered themselves “professionals.” This included doctors, lawyers, and other professions that required a designation. E&O was the coverage that was used for everyone else. Functionally, they did the same thing, however.

In a general sense, professional liability coverage refers to protection against claims made by a third party that your service has caused them a loss. This does not include property damage since your general liability coverage would cover that. This protection could insulate you from your legal costs, hiring witnesses, and any compensation that may be awarded to the complainant. Your business could be devastated without this coverage if the claim is high enough.

 

There is a technical difference between the two terms

While they both do the same thing, there is a slight technical difference between the two terms. Professional Liability is the umbrella term covering several different coverages that provide service-related protection. Errors and omissions is just one of those coverages that fall under that umbrella.

Several coverages also fall under that categorization. As the name would suggest, errors and omissions refer to what a business has done in error and what a business has not done while providing that service. The other types of professional liability include directors liability insurance, medical malpractice insurance, legal malpractice insurance, and employment practices liability insurance. The latter protects against claims of discrimination and sexual harassment in the workplace.

 

Benefits of professional liability coverage

The big difference between a professional liability policy and other types of liability is that it covers monetary damages more than physical damages. If your company is negligent in some way that causes the client to lose money, then your professional liability insurance will cover it. General liability coverage will apply if a client is injured at your workplace.

Professional liability will provide you with compensation for your defense. A lawsuit can take years to resolve, and that whole time you may have to pay out for lawyer fees and other expenses. Failing to have coverage could severely damage your business or even force you to close your doors.

 

Industry-specific coverage

Every profession comes with specific risks that can be unique. You need to have coverage tailored to the type of work you do; otherwise, you might not be properly covered. For example, an accountant would need a certain type of coverage if acting as an administrator of someone’s finances or as a trustee. Technology professionals would need coverage for the data they are storing digitally. Any profession that provides a service, such as a pest control company, contractors, real estate agents, and architects, would require coverage that addresses the specific risks they face.

 

Examples of professional liability and errors & omissions coverage

Sometimes it can be hard to know what types of situations would require professional liability coverage. Here are just a few.

  • A doctor sees a patient who has a complaint about some symptoms. The doctor does some tests and makes some assumptions based on the blood work numbers they see. They then prescribe some medication to help treat the underlying issue. However, they were wrong in their diagnosis and provided the patient with a drug that has side effects. Over time, the side effects get quite severe and cause the patient to get very ill, while the original issue remains. The patient can then make a claim for medical malpractice to get compensation for their pain and suffering, lost wages, and medical bills.
  • An architect is hired to design a concert hall with amazing acoustics. They develop a plan that supposedly uses the right measurements, angles, and materials to provide amazing sound quality for the musical acts and the patrons. However, once the building is finished, it turns out that the acoustics in the hall are not good at all. It turns out that the architect had used the wrong type of wood in the plan, and the sound was getting swallowed up. Because of this, the concert hall could not bring in the acts that it wanted and had to change its purpose. They could sue the architect for the cost of the building, plus the amount that the building was projected to make as a concert hall.

Don’t let the fact that there are two terms fool you into thinking professional liability and errors & omissions coverage are two different things. They essentially play the same role in providing businesses with protection against their own mistakes.

Millions of businesses are sued every year, and you never know when you might be next. All it takes is for someone to have the perception that your business has wronged them. Professional liability or errors and omissions coverage will make sure that your business is protected.

 

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Photo: bnenin, YFS Magazine, Adobe Stock
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