Errors and omissions insurance or professional indemnity cover offers protection to the company and its subsidiaries against various claims which can arise in respect of negligence, errors or omissions while discharging their professional services.
Every professional, irrespective of in which domain he/she is working, should purchase errors and omissions insurance policy. While taking the policy, it is essential to pay attention towards its various terms & conditions.
Key Takeaways
The Operative Foundation: The Operative Clause is more than just names; it binds the insurer to indemnify the policyholder for the specific business activities listed. If your profession is incorrectly stated here, the entire policy could be void.
The “Claims-Made” Trigger: The Insuring Clause mandates that a claim must be made and reported in writing during the policy tenure. This reinforces the need for meticulous record-keeping and immediate notification.
Centralized Communication: Through the Authorisation Clause, individual employees or partners give their consent for the firm to handle all insurance matters. This prevents confusion during high-stress legal proceedings.
Post-Expiry Protection: The Extended Claim Reporting Clause offers a 90-day “grace period” for reporting claims after a policy is cancelled or expires, provided no other active insurance is in place.
Jurisdictional Certainty: The Policy Disputes Clause ensures that you won’t be dragged into foreign legal systems. For Indian firms like K.N. Consultant, this guarantees that disputes are settled under Indian law and within Indian courts.
Here are some of the clauses which come under errors and omissions insurance policy
- Operative Clause= It includes the name of the insurance company and the name of the person who has applied for the policy. It says that the insured carrying out the business/profession as stated in the policy would be indemnified on the basis of the contract. The policy witnesses that as per the terms and conditions stated in the policy, the insurer will indemnify the policyholder against legal liability to pay compensation, including expenses, fees and defence costs, anywhere in India, in accordance with the law.
- Insuring Clause=, The insurer would settle the claim on behalf of the policyholder for the loss arising out of professional services, which result from a claim made against the insured during the policy tenure. However, the claim would be settled only if it is reported to the insurer in writing and within the time as stated in the policy.
- Authorisation Clause= By accepting the policy, the insured organisation agrees to act on behalf of each insured when it comes to giving and receiving the notice of claim or termination, the premium payment and receiving of any return premiums that may become due under errors and omissions insurance policy. Here, each insured gives its consent that the insured organisation would act on their behalf.
- Extended Claim Reporting Clause= In case where the errors and omissions insurance policy is cancelled either by the insurer or the policyholder, the insurer would give a time-limit, which would not be more than 90 days from the date of expiry or cancellation of the Policy, provided there is no other insurance policy which is effective during this period.
Read more: What is IPR Infringement Clause in Errors and Omission Insurance?
The time-limit given by the insurer can be used by the policyholder for making a claim which could not be made during the policy tenure. Here, all the claims made during the extended reporting period would be handled in the way that if they were filed on the last day of the expiry of the policy tenure and are also subject to the limits of indemnity and the terms & conditions and exceptions as stated in the policy.
- Policy Disputes Clause= In case any dispute arose with regards to the terms, conditions, limitations, exclusions as stated in the policy as understood and agreed by both the policyholder and the insurer, would be subject to Indian law.
Each party, i.e., policyholder and insurance company, agrees to apply to the jurisdiction of any Court in India. Further, both the parties would fulfil all the requirements of the court of jurisdiction. It also means, that all the matters which arise shall be settled in accordance with the law of such court.
Case
K.N Consultant is one of the leading consultant service providers in India. Last year, the company decided to buy errors and omissions insurance policy to get coverage in case any of its clients sue it for its actions.
Read more: Why is Errors & Omissions Insurance Important?
Summary Table: Core Clauses of an E&O Policy
| Clause Name | Primary Function | Business Impact |
| Operative Clause | Defines the parties (Insurer/Insured) and the scope of work. | Identification: Ensures the specific profession is correctly indemnified. |
| Insuring Clause | The “heart” of the policy; triggers the payout for losses. | Payout: Sets the rules for claims made during the policy tenure. |
| Authorisation Clause | Appoints the organization to act for all employees/subsidiaries. | Efficiency: Streamlines communication and premium payments. |
| Extended Reporting | Provides a buffer period (up to 90 days) after expiry. | Safety Net: Covers claims discovered immediately after the policy ends. |
| Policy Disputes | Determines the legal jurisdiction (e.g., Indian Law). | Compliance: Ensures all legal matters are settled in local courts. |
The company chose one of the insurers offering errors and omissions insurance policy and went ahead with the policy. Here the insurance policy came with an operative clause, which clearly stated the name of the insurer and insured along with terms & conditions that would be applicable. Further, there was an insuring clause, according to which the insurance company agreed to pay compensation on behalf of the insured. The insurer also agreed to pay defense costs to the policyholder. The policy dispute clause had clearly stated that any disputes would be settled in a court in India only.
Frequently Asked Questions (FAQs)
1. What happens if I perform a service not mentioned in the Operative Clause?
A) The insurer may deny the claim. The Operative Clause explicitly covers you while “carrying out the business/profession as stated in the policy.” If you are an IT consultant but give architectural advice, that advice is likely not covered.
2. Can I report a claim over the phone instead of in writing?
A) While you should call your insurer immediately, the Insuring Clause specifically requires the claim to be reported “in writing.” Failing to provide a written notice within the timeframe stated in the policy can lead to a rejection.
3. Does the “Extended Reporting Period” cover new mistakes made during those 90 days?
A) No. It only allows you to report claims for mistakes made before the policy expired. Any professional work done after the cancellation date requires a new, active policy for coverage.
4. Why is the “Authorisation Clause” necessary for a company?
A) In large firms with multiple partners or subsidiaries, this clause prevents every single person from having to sign insurance documents. It empowers the main organization to make decisions, pay premiums, and receive refunds on behalf of everyone covered.
5. If a client sues me in a foreign court, does the Policy Disputes Clause still apply?
A) This clause usually governs disputes between you and your insurer. If your policy specifies “any Court in India,” then any disagreement over how the insurer is handling your case must be settled in India, regardless of where the original client lawsuit was filed.
About The Author
Amit
MBA Finance
Amit is an experienced insurance professional with 7 years in the industry, specializing in Errors & Omissions Insurance. Writing for SecureNow, he provides clear and insightful blogs and articles to help professionals understand the importance and nuances of E&O coverage. His expertise ensures that readers receive practical advice on protecting themselves from potential liabilities and professional risks. Dedicated to making complex insurance topics accessible, Amit stays updated on industry developments, delivering valuable content that empowers professionals to make informed decisions about their E&O insurance needs.
