One common misconception I see is the misunderstanding that E&O insurance is different from professional liability insurance. Errors and omissions insurance, professional liability insurance and legal malpractice insurance are all different terms describing the same type of insurance coverage.
As an account executive at Protexure, my goal is to help lawyers better understand their E&O coverage. The information I highlight in this article covers real questions that are asked of agents, like me, all the time when attorneys are considering coverage.
In this article you will learn what E&O Insurance covers, why attorneys need it and how to obtain a policy.
Errors and Omissions Insurance Definition
Error and Omission (E&O) Insurance protects law firms from bearing the full cost of potential claims made against them while performing professional services. This insurance coverage is geared toward protecting professionals or entities from claims of business mistakes or negligent acts.
What Is Covered under Errors and Omission Insurance?
A lawsuit against an attorney can financially devastate any individual or law firm that does not carry errors and omissions coverage. E&O insurance coverage protects the assets of law firms well as individual attorneys.
An E&O policy covers what is called “wrongful acts.” Under this type of insurance policy, a wrongful act is defined as an act, error, or omission that occurs while performing professional services.
Errors and Omissions Insurance also covers negligence or a breach of duty of care between the client, third parties, and the professional. It holds legal professionals accountable to make decisions not only in good faith and in a reasonable manner, but also financially, ethically, and legally sound.
Why do Lawyers Need E&O Insurance?
Every attorney's worst nightmare is having a claim filed against them. Whether it is a disgruntled client, a communication misunderstanding or an actual mistake, claims happen. And, they happen when they are least expected.
The reality is, we are all human and mistakes happen to the best of us. Deadlines can be missed, conflicts of interest happen, and errors in communication occur.
Additionally, despite your best efforts, clients can view situations differently than anticipated. A client can feel as though their fiances were misused. They might not have confidence in the investigation or discovery on their behalf. Or, the client could feel as though there was a failure to know or apply the law.
Is your head spinning yet? If it is, you're not alone.
Mine was spinning simply listing the potential scenarios.
E&O insurance was created to cover an otherwise devastating economic loss to business professionals like attorneys. In the event of a claim, it will either reimburse the insured or pay for the covered damages and defense costs on the insured's behalf.
The need for E&O insurance has increased dramatically as the potential exposures have continued to increase across the country.
Over the years, there has been a steady increase in malpractice claims against lawyers. According to the American Bar Association, four out of five lawyers will be sued for malpractice at some point in their career.
In turn, this has increased the need for lawyers to seek coverage against financial loss that can result from an error or omission deriving from their professional responsibility.
How to Get Error and Omissions Insurance
After understanding what E&O insurance is and why it is important, you might be wondering, how do I get a policy?
For attorneys looking to obtain an errors and omissions insurance policy, I recommend beginning their search by visiting the American Bar Association website. The ABA website has a directory of insurance agencies and carriers organized by state.
The ABA directory provides details on each insurance provider, their underwriting restrictions, law firm size guidelines, limits/deductible options, and endorsements within the policy.
It is best to explore the listed insurance companies and review their respective websites separately. While the directory provides a great starting place, you can learn alot about each specific E&O insurance provider by reviewing their website.
In order to find the right insurance coverage that fits your needs you should consider the following:
Carrier Reputation
The first item to consider when obtaining errors and omissions insurance is choosing a reputable carrier. One resource you can use to determine if the carrier you are considering is reputable is by checking its A.M. Best rating. The AM Best rating provides insight into the financial stability of insurance carriers. It is best to choose an insurance carrier with an A rating or above.
Another thing to consider when choosing a carrier is how they handle claims and what kind of resources they have available to you for support and/or guidance. While effective and efficient claims handling is important, finding a carrier that also provides solid risk management resources will help you firm avoid a claim in the first place.
Coverage
When it comes to putting an errors and omissions policy in place, the “amount” of insurance you have is crucial. There are many coverage options to consider and choosing the appropriate limits of liability for your law firm is a major step in obtaining a policy.
No two law firms are the same therefore each law firm needs to decide on the amount of insurance coverage that fits them best.
The amount of coverage needed for a criminal defense lawyer is not the same as what the amount a personal injury attorney should carry. Likewise, a large law firm has different coverage needs from a small law firm. Each law firm’s level of risk is different, those with higher risk areas of practice or larger law practices should consider higher limits.
Price
When purchasing anything, we all want to know, how much will this cost me?
When it comes to the cost of errors and omissions insurance, unfortunately, I can not give a clear cut answer. The cost of insurance depends on many factors. Just like no two law firms require the same coverage, no two law firms have the same insurance premium.
Understanding the multitude of factors that go into determining the cost of insurance can help you gauge where you might fall on the premium spectrum, but the only true way to know what you will pay is to get an insurance quote.
Everyone wants the best deal possible on their insurance but shoppers need to be aware that low prices can sometimes come at a cost in terms of not getting adequate coverage. You will want to review the policy, without making assumptions, and understand what the policy covers and what it does not.
Next Steps
Having and maintaining an errors and omissions policy is a vital component of a long-term business plan. As a legal professional and business owner, your law firm is one of your most valued assets and protecting it is highly important.
Hopefully, after finishing this article, I have provided you with a firm understanding of what errors and omissions insurance is. But, I also may have opened up an entire pandora's box of questions as well.
If you are new to errors and omissions insurance there is undoubtedly still more to learn. Even though I’d like to think this article has given you all the information you need to know, I want to point you in the right direction for even more knowledge.
One of my favorite sayings is, “I don't know, what I don't know.” If this resonates with you on this topic and you're not sure where to turn next, we have compiled everything someone new to insurance needs to know.
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