What Do So Many Businesses Misunderstand About E&O Insurance?

What a Policy of Errors & Omissions Can Do for You

As with all forms of insurance, E&O insurance can be hard to understand. And that’s under the best of circumstances when a business owner has plenty of time to learn about this essential coverage. So what do so many business misunderstand about E&O insurance?

For one thing, they assume it’s a “nice-to-have” type of insurance, assuming there are discretionary funds available. But since many solo financial professionals or those who run boutique operations only have slim margins over expenses, E&O insurance is viewed as a luxury. However, protecting yourself against E&O claims can literally spell the difference between your business surviving a major lawsuit and crumbling in the face of an insurmountable judgment.

For another thing, businesses view client lawsuits as something that happens to other firms. You know, to the ones that never established a desired client profile or that skimped on customer service in order to maximize profits. Not true. E&O claims happen even to firms that add new clients with care or who invest heavily in customer service. That’s because no matter how capable they are at customer service, employees are human and prone to making mistakes.

Finally, financial professionals assume that clients are more likely to bring suit against larger firms, viewing them as having more resources with which to settle a lawsuit. Again, this is a misperception. In fact, according to a study conducted by the U.S. Chamber Institute for Legal Reform, small firms shouldered the vast majority of tort liability costs ($105.4 billion in 2008), even though they represented only 22 percent of all business revenue. Presumably, large firms with extensive legal support are better equipped at making frivolous lawsuits “go away.”

Here’s our point: If you’re serious about succeeding in business, don’t fall prey to common misunderstandings about E&O insurance. Accept that it’s a crucial form of insurance protection, which nearly every small business needs in today’s litigious environment.

Do you understand what a policy of errors & omissions can do for you? If not, read on.

Boiled down to its core essence, E&O insurance makes your firm whole in the event it loses a client lawsuit and a judge hands down a large legal judgment against you. In this event, E&O insurance provides funds to retain an attorney to defend you and to indemnify the plaintiff should you lose in court.  It also pays for court costs as well as the expense of retaining an expert witness to testify on your behalf. But the essential features of cash to pay for legal advice and money to discharge a legal judgment are what you really need to know about E&O insurance. Without those two benefits, many financial professionals are unable to emerge intact from a legal battle they fight hard to win, but lose.

E&O Insurance Is Not Commercial General Liability Insurance

Financial professionals often assume that purchasing a commercial general liability (CGL) policy will cover their E&O losses also. Unfortunately, CGL policies are not designed to protect firms against E&O problems. For example, CGL insurance will not pay benefits if your error or omission causes a customer to lose money. It will only pay when your mistake produces property damage or bodily injury to your buyers or to a customer of your customer.

There are a number of other differences between CGL policies and E&O insurance. Suffice it to say, if you’re involved in the sale and delivery of financial services, it’s important to have both CGL insurance and E&O insurance to have comprehensive protection —as well as full peace of mind.

Your Best Defense against Lawsuits, Damages, and Counterfeit Claims

In short, your best defense against lawsuits, damages, and other business claims is to do business ethically, legally, and with a commitment to quality in every facet of your business. However, as we mentioned earlier, mistakes do happen. So it’s also important to defend yourself against lawsuits by purchasing a high quality, affordable E&O insurance policy that will provide funds to pay for legal judgments and settlements that otherwise might bankrupt your firm.

The bottom line? Would you drive your car without auto insurance? Raise a family without insuring their medical expenses? Buy a house without insuring it against fire and theft? Of course not! So why would you operate a business without protecting it against the threat of getting sued?

Do the wise thing and protect your business against E&O claims today. And if you’re pressed for time, considering purchasing E&O insurance from an online provider such as EOforLess.com. By visiting our user-friendly site, you will be able to select, apply for, and print out your proof of coverage in short order. It’s yet another reason to do the right thing for your business before it’s too late.