Many small business owners know it’s important to have coverage that protects their business property and their general liability risks. But did you know that professional services require specific coverage? Without insurance that protects your professional service or advice, you could be liable to pay for costly lawsuits should a client suffer a loss due to your work. Thankfully, it can be easy to protect your professional actions with Errors and Omissions Insurance.

What is Errors and Omissions Insurance? 

Errors and Omissions Insurance (E&O) is also known as Professional Liability Insurance and, in some cases, Malpractice Insurance.

E&O Insurance is a type of business liability insurance. It provides financial protection against claims alleging that your services weren’t adequate or it directly involved negative actions, such as negligence, misconduct or causing financial loss.

Some small business owners may assume typical commercial insurance such as Commercial General Liability (CGL) will cover legal claims against their business. In reality, CGL will not cover claims of many liabilities that are directly related to your professional advice or service, which is why it’s essential to have Errors and Omissions Insurance in addition.

What does Errors and Omissions Insurance cover?

Errors and Omissions Insurance may cover the costs of legal fees and any other related costs should you be sued for your professional craft. A client could be unhappy with your service for a variety of reasons, and some may be out of your control.

Here are some of the main allegations and situations that can lead to an E&O lawsuit:

• Negligence in your professional services
• A breach of contract
• Failure to uphold an expected standard of care
• Mistakes or oversights in your work

How much does Errors and Omissions Insurance cost? 

The cost of an Errors and Omissions Insurance policy can vary widely based on a variety of factors. To provide an example though, a marketing agency that generates $50,000 annual revenue – can expect to pay around $300 annually for E&O Insurance. This limit may be enough coverage for small, low-risk businesses, but larger companies may need a higher limit to ensure they’re adequately protected. Most insurance application forms will ask several questions that will help to give you an accurate quote based on the coverage you’ll need.

Here are some of the factors commonly taken into consideration when determining the cost and coverage that’s right for you:

• Industry and type of business: Different professions are exposed to different risks, and some risks are typically more costly than others.
• Years of experience: If you have many years of experience in a profession, it can be considered low-risk compared to a new venture.
• Annual and projected revenue: Yearly revenue helps to determine the most competitive insurance package that’s suitable for your business size
• Number of employees: Similarly to your revenue, the number of employees helps determine the appropriate coverage based on the size of your business.

What types of small businesses need E&O Insurance?

E&O Insurance is applicable for any small business that provides a professional service. Professional services come in many forms – from consultants, marketing and IT professionals to paralegals – and many more.

Here’s some detail of how E&O Insurance can cover scenarios that may occur in specific professional industries:

• Web developer: You create a website for a client’s business. The client sues you, alleging that the code was poorly written and has produced a security threat for the company. E&O Insurance may cover you for the legal costs and other related costs.
• Beautician: A client wants to dye their dark hair platinum blonde. You think their hair seems strong enough to use peroxide, but a significant amount of hair breaks during the process. The client sues you for negligence. E&O Insurance may cover the legal fees. 
• Business Consultant: You create a financial plan for a business with a budget to help them break-even in a year. After a month, the client realizes your math was wrong, and their budget is pushing them into debt. E&O Insurance could cover both the legal fees and lost income.
• Engineer: As a chemical engineer, you help a brand create a water-resistant sunscreen. After more than 1000 bottles had sold, it became apparent the sunscreen wasn’t resistant when applied in extreme heat. The brand sues you for failing to meet industry standards. E&O Insurance may cover the legal fees and other related costs. 

If you’re unsure whether Errors and Omissions Insurance is right for your business, you can request a quote from Zensurance. By answering a few questions about your business, our online application form can help you determine the coverages that apply to your specific needs. Alternatively, check with one of our knowledgeable brokers – they’ll be able to advise you on the particular coverages you should consider and answer any questions you may have.

Running a business is stressful, but your insurance doesn’t have to be. At Zensurance, it’s our mission to make small business insurance as accessible and transparent as possible. That’s why we’ve replaced confusing insurance jargon with everyday language. Over the years, and from coast to coast, we’ve served over 100,000 Canadian entrepreneurs with custom quotes for their unique businesses.

If you’re a small business owner in BC looking for more information on commercial insurance coverages, please visit www.zensurance.com