As a professional business owner, you know that satisfied customers make your brand profitable. So, when professional mistakes get made, how will you navigate those situations and protect your financial well-being?
Fortunately, many business insurers provide additional coverage options for costs relating to an error you or an employee made. Insurance can make things right with a customer and pay for the related legal fees, potentially preventing your reputation from suffering. But, which is better? Errors and omissions (E&O) insurance or a professional liability policy? It may surprise you that these are the same, just called different names.
Are Professional Liability and E&O the Same Coverage?
In short, they serve the same purpose. Technically speaking, professional liability is the larger umbrella term relating to the overall legal liabilities you have as a professional provider to compensate for damages you might cause to a customer because of a mistake. E&O coverage specifically addresses the errors you made that shouldn’t have occurred, including omissions on your part.
To better understand what E&O refers to, consider the following example:
Your accounting business is processing the yearly income taxes for a local florist. At some point in your calculations, you forgot to include investment earnings, which resulted in your client paying fewer taxes than they should have, triggering an audit by the IRS. This is an omission on your part that financially hurts your customer.
Or, in this same situation, you instead counted the shop’s investment earnings twice as part of your calculation. This error results in the florist paying more taxes than they should have.
An E&O policy would cover both of these instances.
What Protections Does E&O Insurance Provide?
If you’re a business that provides professional services (i.e., accounting, medical care, dentistry, etc.), you need E&O coverage. Your services have risks involved that a general liability policy may not protect against, including:
- Missed deadlines
- Errors and/or omissions in your work
- Breach of contract claims
- Failing to complete work
- Substandard work quality
If a client’s dissatisfaction is legitimate or not, if they suffered a financial loss because of your mistakes, they might sue. How will you cover the related costs of going to court and defending yourself? What if the court agrees with the customer? How will you pay for any settlement or judgments?
This is where E&O coverage steps in and protects your business by paying for these expenses. Without this policy, your business assets would have to cover it.
Top Methods to Minimize E&O Claims
One of the worst outcomes of making a professional mistake is your customer suing your company for damages. E&O coverage specifically addresses the issues that would otherwise lead to an expensive court trial because it can cover the related legal fees and damages.
Ideally, you want your business and employees to avoid these errors altogether, and the following tips can help you do that:
Be Picky About Who You Hire
Anyone you hire should have the necessary training, education, and work experience backing up their expertise in your industry. Always take time to verify accreditations listed on resumes and follow up with previous employers. Mistakes often happen out of ignorance, so being aware of your employee’s skill level for their role is vital in minimizing E&O claims.
Use Detailed Contracts
Another frequent mistake companies make that leads to errors and/or omissions is using vaguely worded work agreements. When expectations and costs aren’t in writing, the chances of a dispute arising after your work is complete go higher.
Use these best practices when creating business contracts:
- Include a clearly defined timeline
- Any services you are providing should have their scope detailed in writing
- Specify exactly what deliverables your service is providing
- Give a detailed scope of services with specifically defined deliverables
- Outline the complaint process
- Provide an easy-to-understand explanation of your liability limitations and what damages you would cover
- Ask your attorney to review your contracts to ensure enforceability of the terms
As a professional service, you will probably have a lot of deadlines, but don’t just focus on the due date. To ensure your team makes the promised delivery date and avoids a potential E&O claim, create milestones to keep on track. These will keep things on time and provide opportunities for clients to recommend any needed adjustments.
Clear Communication is a Must
Misunderstandings between professionals and their clients regarding contract details, project expectations, and deadlines are often the result of failed communication. Any conversations you have regarding a service you’re providing should have some form of a written record. Even if someone calls for a quote, send a follow-up email briefly summarizing what was discussed. This will prevent claims of false advertisement or misleading sales tactics.
Review, Review, Review
While you don’t want to create bottlenecks in your workflow, you also want to have a process that ensures all of your work is top quality. This means double-checking any deliverables you send to a client. Consider having a two-step review process to verify work going to a customer meets the terms of your contract.
Get a Professional Liability Insurance Sooner than Later
Minimizing the chances of making a professional mistake that leaves a customer seriously dissatisfied isn’t too difficult. However, it requires proactive planning, including adequately insuring your business against the liability and costs of making such errors. Professional business insurance/E&O coverage can provide you peace of mind by protecting your finances should an error occur.