The ABCs of E&O Coverage

GL, PL, PI, BI, PD, K & R, EPLI, you name it.  The world of insurance can be a complicated maze of initials and acronyms, which are often seemingly used to confuse the insurance buyer.  Among the hodge-podge of acronyms, nicknames and “short-fors” are E & O and D & O which, when used together, have comfortably sunk into the industry lexicon as meaning anything and everything professional.

Errors and Omissions insurance (E&O) and Directors and Officers Liability Insurance (D&O) have certainly undergone change over the years.  D & O once referred to a distinct monoline (single coverage) product that protected the directors and officers of a corporation, usually publicly traded, against claims of malfeasance in protecting the interests of shareholders of the corporation.  In other words, directors and officers of the corporation are expected to use reasonable care in making decisions on behalf of the corporation, providing shareholders with maximum value.  Failure to disclose information to the public is a common allegation against directors and officers of public corporations.  Just think Enron.

Nowadays, D&O insurance is purchased by public and private corporations, and the menu of coverages available to corporations on a bundled basis is staggering.  Along with the D & O insurance you can often find Kidnap & Ransom (K & R) insurance, EPLI (Employment Practices Liability Insurance), and a host of others.

Often, E & O insurance can be purchased on the same bill as the D & O if the company provides a service that makes it eligible for E & O insurance, but typically, E & O is highly specialized and is purchased separately on a monoline basis.  That begs the question:  What is E & O?

Errors & Omissions, often referred to as Professional Liability Insurance or formerly called Malpractice Insurance, can cover professional and service providers across a broad spectrum of industries.  We’re all familiar with the trials and tribulations that doctors are facing today in the Medical Malpractice arena (or Med Mal if you prefer the “short for”).  Other professionals that carry this type of coverage include accountants, architects, engineers, and lawyers.  These classes are among the more traditional, but anyone who relies on specialized knowledge to provide a service is at risk of a lawsuit for which E & O coverage is available and essential in the litigious world we live in today.   Coverage is highly recommended for real estate agents, mortgage brokers, barbers and beauticians, morticians, travel agents, teachers, fitness trainers, printers, temporary staffing firms and recruiters.   Just about any kind of consultant, from computer to marketing to management consultants, and so on, needs the security of this coverage.  In fact, consultants are often required to carry the coverage by contract if their clients are midsize or large corporations.  This requirement provides one for companies to manage their risk.

Many people are under the impression that their General Liability Insurance, or in the case of a home-based business, Homeowners Insurance, will provide all the necessary coverage.  Not so.  These plans are appropriately designed to cover perils like bodily injury, i.e., a slip and fall in your office or on your property, but they are rarely capable of handling the kinds of exposure that E  & O covers, namely financial loss.  For example, if you are a real estate agent and you are accused of misrepresenting a property you have shown to your client, resulting in a bad decision with respect to the purchase or in some cases sale of a residential or commercial property, you can almost count on being sued.  Since the allegations have to do with the provision of expertise and the loss is a financial one, don’t expect it to be covered under the General Liability policy you purchase unless there is a specific rider.  Some insurance companies will include E & O coverage for a handful of classes such as printers or barbers/beauticians on a standard General Liability policy, but these are usually exceptions rather than the rule.

So if you feel that you may have an E & O or D & O exposure that is not currently covered, call your insurance agent today! That’s PDQ (pretty darn quickly)!

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