Errors & omissions insurance, or “E&O,” is a type of professional liability insurance. The professional liability category of business insurance includes several types of policies. Miscellaneous professional liability, technology E&O, and malpractice insurance are three of the more common examples. Beyond those, many types of businesses in the the manufacturing, agricultural and financial sectors have policies designed specifically for them and their unique exposures.
Technology E&O and cyber liability coverages are often packaged together since the two types of claims tend to intertwine.
Why do I need errors & omissions insurance?
You may be extremely confident that product works as advertised or that your services are performed with reliability and precision. Your confidence may be completely warranted.
You probably still need errors & omissions insurance.
- Pobody’s nerfect! Regardless of how well your company performs its services, it’s still run by humans. Humans make mistakes.
- Even if you are literally perfect, customer satisfaction is subjective. The customer is always right, yes, but we all know that some customers inevitably set the bar way too high. Some may be suffering financially and looking for any route that will help them rescue their balance sheet. Even if they bring a claim against your company that doesn’t stand a chance in court, you’ll still have to pay lawyers to deal with it.
If your cannabis or agtech company performs a professional service for another party — be it consulting, marketing, hosting, developing, processing, advising, managing, reporting or any number of other functions — you run the risk that the other party will claim they suffered a financial loss as a result of a failure in your service.
To illustrate, imagine you’re a marketplace that connects manufacturers or retailers of cannabis peripherals with customers. If your platform has a bug or, worse, goes down, you could have some very angry companies on your hands. Your GL policy would not respond in this situation since there hasn’t been any physical injury to the client’s property. Instead, E&O would respond to covered claims brought by customers for their lost sales.
Or perhaps your business is more advisory in nature. Financial services and consulting firms often fall within this category. A lab testing company that stands by its analyses takes the risk that an error, omission or misstatement in its service will lead to clients losing money (or worse).
The types of operations that need professional liability coverage to mitigate their risk are almost too many to count. The key is that there is some ongoing professional relationship between your company and a third party.
Regardless of the type of operation, companies that perform professional services need the right E&O policy in place to protect them if a customer relationship breaks down and legal action starts.
What is it?
Errors & omissions insurance covers two very big risks:
- Financial loss of a third party arising from failure of the insured’s product to perform as intended or expected.
- Financial loss of a third party arising from an act, error or omission committed in the course of the policyholder’s performance of services for another.
Essentially, if you make a claim that your product or service will perform in a way that would be expected based on industry standards and your customer decides that claim was unfounded, errors & omissions insurance would step in to protect you from the lawsuit. The policy does this by paying your defense costs as well as settlements and judgments against your company. It’s malpractice insurance.
You might be thinking that this is just like products liability coverage provided by GL insurance policies. In a way, you’re right! Both are insurance policies that protect you from liability to third parties that results from the use of your product. The difference is that E&O is focused on purely financial losses, not bodily injury or property damage as is the case with GL insurance. (The exceptions to this rule include medical malpractice insurance as well as E&O policies with “contingent bodily injury/property damage” coverage enhancements).
Depending on the type of business you’re in, other coverages may be built into your policy. For example, companies in the agtech space often purchase policies that include protections from liability after data breaches, hacking attacks and even allegations of defamatory material in the company’s online content.
How do I protect my company and myself?
Talk to us! You can contact us at firstname.lastname@example.org to get started on a quote for an errors & omissions insurance policy.
Want to read more on the subject? Check out our blog posts on errors & omissions insurance.
Read about other types of coverage