Not For Those Who Do Not Make Mistakes

Any professional offering service should investigate error and omissions insurance, coverage which protects against liability should a client hold him responsible for financial injury in the performance of that service. This insurance attempts to protect either an individual or a company from sustaining costs of a lawsuit, at least up to the amount covered by the policy. In the case of doctors or dentists, this insurance is often called malpractice insurance; however, the concept applies equally to accountants, architects and engineers. Lawsuits, even groundless ones, can cost thousands of dollars that, in turn, can bankrupt an individual or a small company. There are at least three questions that should be answered when considering this insurance: Why buy it? When should it be purchased? How is coverage assessed?

An obvious answer to the question of why buy error and omissions insurance lies in our humanity. Everyone makes mistakes; no one is perfect. One can hire the best employees and apply the best risk management practices, and yet, errors will be made. Not buying this insurance can be a grave error in itself exposing either the individual or the company to financial ruin, no matter who is at fault, since litigation absorbs both time and money.

The best time to buy insurance against blunders, both those of omission or commission, is before the chance is taken. Anyone in a service industry should acquire it initially. Some if not all contracts with clients will impose the need for this insurance before service is rendered; therefore, having it can be a selling point in negotiating the contract with the client. It gives comfort knowing that compensation will be forthcoming in case of error or omission.

When one is considering policies for error and omission coverage, consider the business's vulnerabilities. The perils for an attorney and a computer programmer are surely not the same. Also, consider the proposed policy period. Claims arising prior or after the policy period are not covered; therefore, write in a retroactive date, the farther back the better. Another consideration should be the limit of the liability; assure that punitive damages are included. All of these aspects bolster the necessity of finding an insurance professional that is cognizant of all facets of error and omissions insurance coverage as well as the marketplace in which it is sold. Cost varies depending on one's business, geographic location and the claims experience of the insurance company. When negotiating the policy, the insurance company underwriter will be interested in the professional's quality control procedures, documentation and training procedures and past claims. Finally, he or she will want to know what steps were taken to guarantee that the same errors would not be repeated. Getting a good price on the policy may well depend on whether the underwriter is convinced that one's operation is sound.

Therefore, error and omissions insurance helps to protect the individual and her business with coverage of claims of negligent activities or failure to use care. Since no one or no group is perfect, it appears reasonable to consider this insurance as a requisite when starting a business. These comments have, it is hoped, been instrumental in persuading its necessity.





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