The Errors & Omissions Insurance (E&O) policy shields you and your company against lawsuits that may be filed by those customers, stakeholders, etc.; who have incurred losses due to your services or products. Also called professional liability insurance, the E&O insurance policy covers judgment, settlement, and various defense costs. Even if the allegations are false, thousands of rupees could be required to defend the lawsuit, which can bankrupt a company and even ruin its reputation.
Read More: What is Errors & Omissions Insurance?
In most of the cases, the best-known professionals who need professional indemnity insurance policies are lawyers, engineers, doctors, architects, etc. However, fewer thought occupations or professionals who need the policy range from advertising agencies, commercial printers to wedding planners.
Overall, if you are in the business of offering products or services to customers, you should buy a professional liability insurance policy.
Regardless of how many awards you have won, how many years of experience you have under your belt, the bottom line is that we all are human beings and mistakes are bound to happen. Even when you have the best employees and the most viable risk management practices in place, errors can happen. Unfortunately, one small mistake can cause lots of financial losses.
Jayant Sinha owns and manages J.S Programming, a small company that offers various programming services. The company develops customised software programs as per the divergent needs of its clients.
Last month, Jayant got a business shock when he received a legal notice. The plaintiff was K.M Hardware, a small chain of hardware stores. K.M Hardware had hired J.S Programming to create an inventory management and tracking system which J.S completed and installed at the hardware chain nearly four months ago.
Now, K.M Hardware filed a lawsuit claiming that the program was full of bugs and as a result, they found it difficult to use it. The suit also alleged that J.S Programming did not test the program efficiently and this negligence cost K.M Hardware lakhs of rupees.
Unfortunately, J.S Programming did not have the Errors & Omissions Insurance policy, and as a result, Jayant Sinha had to pay the compensation and legal charges from his pocket. The situation would have been different if Jayant had bought a professional liability insurance. In this case, in addition to covering the compensation amount, the insurer would have covered the legal charges as well.
After working in a corporate world, Ravi Kumar decides to start his law firm. With an experience over ten years, Ravi is confident that his skills and expertise will help him grow his business. While finalising his office space and furniture, Ravi should also buy a professional indemnity insurance, which will help him in case any of its clients suffer loss and files a legal case against him.
Finance is the tricky area, and even after due diligence, you can’t give a guarantee that everything will be error-free. For instance, what if Ravi unintentionally miscalculates numbers which increase the tax implications of his client? He could be held legally responsible for it. In this case, Ravi would have to pay the compensation amount from his pocket in case he finds guilty. However, by buying Errors & Omission Insurance Policy, Ravi can share his financial burden with his insurer who would come forward for his help in case legal case is filed against him. In addition to paying the compensation amount, the insurer will also cover legal expenses.
Assume you have a technology consulting company and one of your employees recommends certain billing system to a client. However, this system doesn’t work as per the expectations because your employee puts some incorrect information into the system, costing the client some financial losses. Now, the client expects you to cough up for that loss.
Without the E&O insurance policy, you would have to incur all the financial losses all by yourself. If you had an E&O insurance policy, you’d be covered as long as they were not intentionally done to cause losses or damages to the third-party. The insurance company would cover compensation along with the legal charges.