Why E & O Insurance Is Necessary

Any professional with a small business should know how important e & o insurance is to protect the company’s reputation. In today’s litigation happy society, clients are likely to bring up a lawsuit for any reason. Many times these lawsuits are baseless, but one is still responsible for the legal fees necessary to provide a defense. This coverage will not only pay the policy holder’s legal defense fees, but will also pay out any damages awarded up to a certain amount. It will not cover fraudulent, intentional or illegal activities and usually does not cover punitive damages.

This insurance is practically the equivalent of malpractice insurance for doctors in that the client claims that the service for which he or she paid caused some damage. This can occur in the case of the service being performed or not being performed. A case can end up ruling in favor of the professional or as an out of court settlement, so it is important to have this coverage to prepare for the possibility of a lawsuit even if it works out in his or her favor.

E & O insurance is usually not covered in general liability and property insurance policies, so one must find a policy that fits with his or her professions demands. Furthermore, each policy may not cover the same thing, so he or she must also know the exact terms of the policy and the extent to which his or her practice is covered. One has to also keep in mind that this insurance does not cover the physical assets of the business such as the property or materials needed to conduct business.

Professionals have to also keep in mind that some states require them to carry this type of coverage. This mandate may be for certain professions and have a minimum amount requirement. One must look at any state policies that may be in place for each specific industry. Otherwise, it is up to each individual to determine how much coverage is needed and what type of policy best accommodates his or her needs. Even those who work under another company may decide that an additional policy may be necessary.

An e & o insurance policy is an important safety net for a professional working to protect his or her reputation in the event of a lawsuit. There may be no way to prevent a client from pursuing a claim, but with the right policy, the professional has the resources to fight it and even take care of any damages that must be paid. It is crucial to keep one’s reputation in tact just as much as it is any other asset needed to maintain a viable practice.



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