Professional liability insurance, also known as Errors & Omissions (E&O) coverage, is a type of insurance policy designed specifically to cover professional service providers such as consultants, doctors, lawyers, and CPAs. It’s designed to cover these professionals in the event of mistakes, omissions (made by accident or error), or false claims.
For example, if a CPA is providing tax services and gets something wrong on the client’s tax form, it might later come to the client’s attention that this mistake could have saved them $5,000. If they choose to sue for that money, the CPA would have to pay it directly. With E&O coverage, they would simply pay their deductible.
How is it determined what risks fall under E&O?
Whether something is considered an error, an omission, or whether it falls under another category (and is better covered by another insurance policy, like general liability) differs from profession to profession. In the legal and medical professionals, the definitions are very clear, while others are more nebulous.
For those professions without clear E&O definitions, it falls to the legal system whether or not E&O occurred and it’s up to the individuals trying to get the settlement to prove that it was justified.
They don’t have to prove that their claim is absolutely true in order to benefit from professional liability insurance.
The insurance protects against the claim, not the settlement.
From here, it’s up to the policyholder to decide whether to use their E&O policy or to pay out of pocket and keep their insurance rates down.
What if the client makes a false claim?
Spurious claims can and do happen. To prepare, service providers such as doctors, create standard letters with their lawyers which they use to respond and help clear them up. These responses are sent to the E&O policy provider. As soon as the E&O provider is involved, however, your premiums will go up, regardless of the outcome of the claim. As such, taking steps to protect against false claims is recommended.
That said, the burden of proof is ultimately on the professional because they have the expertise needed in order to disprove an error or omission. As such, many minimize risk by closely documenting their services, timestamping emails, and recording and recapping all conversations.
Written confirmations outlining and documenting as much as possible can stop false claims before they have the chance to get to court.
Furthermore, well-written contracts that identify how services are provided in different circumstances can help professionals cover themselves against false claims that may otherwise raise their insurance premiums (even if the professional successfully defends themselves against a claim).
Should you protect yourself with professional liability insurance?
If you’re in one of the professions named here, you are not immune to risk or mistakes and professional liability insurance is the best way to protect yourself in the event of a claim. It’s almost important to keep accurate documentation, create well-written contracts, and talk openly with your clients or patients about any concerns. Failure to do so could expose you to risk that could be financially ruinous.
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