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Errors and omissions insurance is a type of coverage for businesses. It provides financial protection for a specific type of third-party claim: those that allege issues with the services the company provides.
Let’s say your business provides a client with professional advice. When your client follows the advice, they experience a serious disruption in their project, and come to believe your advice was not sound or based on accurate information. The client sues your business, alleging errors or omissions with your company’s consulting services. Errors or omissions insurance will pay for the legal fees associated with defending the lawsuit, as well as the damages the court awards to the client.
Commercial general liability insurance is another type of insurance that offers businesses broad financial protection from most types of third-party claims. However, it does not typically cover claims related to errors and omissions. Coverage for these types of claims must be purchased separately.
In some professions, this type of coverage is known as professional liability insurance.
This type of insurance covers claims that your services involved or resulted in:
It also provides financial protection for claims alleging your company failed to deliver services.
For businesses that offer media or advertising services, errors and omissions insurance can cover claims that their services resulted in clients getting sued for defamation, libel, or slander.
Errors and omissions insurance is not mandatory in Canada, unless you are in certain professions. Physicians, for example, are required in each province and territory to carry medical liability insurance, a specific type of errors and omissions insurance, in order to practice.
However, errors and omissions insurance is highly recommended for any business that provides services or advice to clients or consumers. Everyone makes mistakes. But getting hit with a lawsuit over an error could have a devastating impact on your business, your finances, and your employees. An errors and omissions insurance policy will significantly reduce your financial losses in the event a client pursues legal action.
This type of coverage is critical if your business provides services or advice to clients. Examples of this type of business include:
In some professions, this type of insurance is mandatory. Physicians in Canada, for example, are required to carry a variation of errors and omissions insurance, called medical liability insurance.
Errors and omissions insurance does not cover claims related to:
Other types of claims are not covered by errors and omissions insurance, but are covered by other kinds of insurance policies. These include claims related to:
The amount you pay for an errors and omissions insurance policy will depend on a variety of factors specific to your business. In general, however, you can expect to pay approximately $250 each year for a policy with a $100,000 limit.
Insurance companies consider several factors to determine rates for errors and omissions coverage. These factors might include:
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Any errors and omissions insurance policy should be evaluated according to two criteria: whether it meets the unique needs of your business, and whether it’s priced at a competitive rate.
The best strategy for finding the right plan for your business is to compare quotes from a range of insurance companies. If that sounds overwhelming, or you don’t know where to start, don’t worry: here at RATESDOTCA, we’ve made it a priority to help you find the right plan in an easy, streamlined way.
Here’s how it works:
Have more questions? We got them answered...
Despite the different names, errors and omissions insurance and professional liability insurance refer to the same thing. Both offer the same coverage for businesses, providing financial protection for third-party claims related to the businesses’ services.
In some industries, you might hear the term “malpractice insurance.” That refers to the same type of coverage as well.
The amount of errors and omissions insurance coverage you need depends on several factors. These include the size of your business, the line of work you’re in, and the types of risks that are common in your industry. Getting the right amount of coverage is important: while over-insuring can unnecessarily raise your premiums, underinsuring will limit your protection from financial losses if you face a third-party claim.
We recommend talking to an experienced broker to make sure you’re adequately protecting your business — while paying the fairest rate.
In a word, yes. Commercial general liability insurance provides businesses with coverage when they face a broad range of third-party claims. These include bodily injury, property damage, advertising injury, product liability, and tenant’s legal liability claims. This type of insurance does not, however, cover third-party claims related to the services your business provides. That’s where errors and omissions insurance steps in.
If you’re still wondering whether you really need both types of coverage, consider the following scenario. Let’s say you own an accounting firm that frequently has clients meeting with accountants in-office. During one such meeting, an elderly client falls off a broken chair you’ve forgotten to throw out. The client seriously injures his back and sues your firm for bodily injury. Because you have commercial general liability insurance, your policy will cover the tens of thousands of dollars it costs to defend your company against the lawsuit.
Later that year, another client discovers your firm made a mistake on their tax return, resulting in a massive tax penalty. The client brings a lawsuit against your firm, alleging it is responsible for the mistake. Because you have errors and omissions insurance, your policy will pay the legal fees to defend your firm in court.
Here’s the lesson: if you believe your business is at risk of facing any of the claims covered by commercial general liability insurance or errors and omissions insurance, the safest bet is to get both.
Jessica Mach is a freelance writer for RATEDOTCA. She is Canada Editor - Law for Key Media’s legal publications, and previously reported on US labour policy for Law360, Law.com, and the Los Angeles Daily Journal. As an early member of LowestRates.ca's editorial team, she covered personal finance and astrology.
She graduated from McGill University with a Master of Arts degree in art history.
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