What is E&O Insurance? Your Ultimate Guide to Errors and Omissions Insurance
It’s designed to provide coverage or shield lawyers from financial losses arising from lawsuits instituted by clients for perceived errors stemming from their practice. A liability policy pays on behalf of the “Named Insured.”
Read on to find out what is E&O insurance, how it works, and why your firm needs it.
What is E&O Insurance?
E&O insurance coverage offers protection from costly malpractice and negligence claims, making it crucial for legal professionals and title agencies. One thing to note is that these policies will only apply to the legal expenses and indemnity amount paid for the wrongdoing, up to your coverage limits. Additionally, errors and omissions insurance does not cover all legal problems.
There are some policies that offer additional benefits, including outside limit coverage, or Defense Costs. These are funds that are set aside to be used for the Defense of a claim. When these funds are depleted, the amount available to pay a claim will be diminished.
Another addition is First Dollar Policies. In this type of policy, the insured is not responsible for paying the deductible unless an actual error is found to have been made. The risk is defended from the “first dollar.”
As a lawyer, the common reasons why a client may file a lawsuit include misfiling documents and shortcomings such as a flawed investigation and insufficient knowledge of the law. Other causes for claims include acting without your client’s consent.
E&O insurance is not a legal requirement in all fifty states of the U.S. However, more than twenty states mandate lawyers without professional liability insurance to inform their clients that they lack this coverage.
Who Needs E&O Insurance?
Does a law firm or title agency require errors and omissions insurance if their firm already has business liability coverage? Well, the answer to this is always yes. Most liability insurance covers bodily injury or illness lawsuits. Business liability insurance fails to cover claims resulting from your firm’s services.
So, who needs E&O insurance? If your job is to provide services, products, and advice to clients, you undoubtedly need this business liability insurance. Some of the professionals that require these plans include architects, medical professionals, accountants, and engineers.
Today, more and more technology professionals realize the need for professional liability insurance due to the increasing cyber threats. As a result, these companies now purchase both tech E&O insurance and cyber liability insurance.
What is E&O Insurance Breadth?
Earlier in this post, we mentioned professional liability insurance covers specific legal costs. So, what is E&O insurance scope?
First, you need to remember that each insurance company has a distinct policy. For this reason, it’s recommended that you understand your policy. Alternatively, you could seek advice from your insurance agent.
Typically, E&O insurance policy covers the client claims relating to your firm’s primary practice domain. Also, this insurance will cover both individual lawyers and the firm.
Furthermore, most insurance policies will offset claims relating to the routine activities for lawyers. Some of these include acting as a title agent, executor, and notary public.
Typically, the policies tend to be inexpensive for firms without a liability claims history. However, those practicing in a riskier law area or have several malpractice lawsuits can only get coverage with high premiums.
These include:
- Entertainment law
- Class action
- Residential real estate
- Intellectual property
- Security law
- Plaintiff bodily injury
What Areas Are Excluded from E&O Insurance Coverage?
Specific actions are not covered by professional liability insurance. These include:
- When the attorney knows of the possibility of a claim but fails to disclose the legality of the claim
- Committing fraud or other malicious crimes.
- Bodily injury as it’s under general liability insurance coverage
- Lawsuits filed by an attorney working for the same insured law firm.
What is a Liability Limit?
A liability limit refers to the maximum amount your insurance company will cover for a liability claim. There are two components to understand in relation to liability limit.
- Individual Limit, which covers per incident.
- The other component is Aggregate, which is over the course of a year.
The legal defense is often included in the liability limit. This means that whatever amount was used to defend you, or the firm diminishes the amount left for use in settlements. Legal fees are part of liability claims because most get dropped while others result in low settlement fees.
Understanding Deductibles
What is E&O insurance deductible? A deductible is a specific cash amount that must be reconciled by the policy owner before a claim is addressed. It often acts as an incentive that reduces your firm’s risk of legal actions against them.
Standard Features of Professional Liability Insurance Policies
Here are the common elements to expect from E&O insurance policies.
- Every policy is claims-made, i.e., they pay for claims filed during the policy’s effect. These claims-made policies have a retroactive date. If the policy is brand new, then this retro-active date is known as the “retro-active inception.” the If you are under such a policy, your insurance will only cover mistakes made on or after this retroactive date.
- Your policy will also include an insuring agreement. This agreement provides a summary of your E&O insurance policy in broad language. Some of the terms contained are Pay on behalf, wrongful act, and Professional services.
- Another common feature is the insurer’s statement of defense coverage.
How Much Does E&O Insurance Cost?
The insurance cost for law firms is variable as it’s dependent on several factors. For instance, new attorneys pay the lowest insurance premium.
Also, attorneys with little private practice experience pay a lower premium compared to seasoned ones. The explanation is simple. New lawyers have few to no liability claims. In comparison, a lawyer with decades of experience will likely handle complex cases and hence might have a history of lawsuits.
Choosing the Correct E&O Insurance Provider
Having professional liability insurance coverage is crucial for you and your law firm’s long-term benefit. At Attorneys First Insurance, we specialize in errors and omissions insurance in Florida, Texas, and many other states. Need more information? Reach out to us at (727) 799-4321 for a quick quote regarding your professional E & O insurance needs.
