What is Errors & Omissions insurance?
Also known as Professional Liability insurance or Malpractice insurance, an Errors & Omissions (E&O) insurance policy provides coverage to defend and indemnify a professional firm against claims alleging negligent acts, errors or omissions in the performance of professional services.
That’s a mouthful, but it sounds more complex than it is. Let’s break it down.
There are several reasons an architecture or engineering firm should purchase Professional Liability insurance:
Defense: Any project can give rise to a claim. Even if your firm employs an excellent risk management strategy, it is vulnerable to being named in a lawsuit. In that case, you’ll need to defend your firm against allegations of negligence. The cost of that defense can mount fast, even if you’re correct and your firm wasn’t in the wrong. A Professional Liability policy covers the cost of defense, along with the indemnity, as described below. (If you have the option to purchase a First Dollar Defense endorsement from your insurance company, you won’t be required to pay your deductible unless the insurance company ultimately pays a settlement payment on your behalf.)
Indemnity: In the event that your firm is found to have been negligent, and that the firm’s negligence gave rise to the claim, your Professional Liability policy will step in and cover your firm for the damages you’re legally obligated to pay, up to the policy limit. Note that, in most cases, defense costs erode the policy limit. Having adequate limits to cover both defense and indemnity is important.
Of course, another reason an architect or engineer should purchase Professional Liability insurance is that most project owners now require this coverage. If you’re in such a position for the first time, you probably have questions about the appropriate limits, deductibles, endorsements, etc., for your firm. The a/e ProNet website offers extensive resources prepared to answer your questions. As well, we can put you in contact with your local a/e ProNet broker. Our members are Professional Liability specialists with extensive experience working with design professionals. They are eager to help you navigate the process of purchasing Professional Liability coverage and appropriately protecting your firm.