Errors & Omissions Risks for Small Businesses
As a business owner, you have confident in your products and services but not all clients will be satisfied. Even if you strive for perfection, things don’t always go as planned.
You may receive complaints, negative reviews online or your business could be sued. In the event a customer is dissatisfied, does your small company have the support to get through?
This is where errors and omissions insurance comes into play. Commonly referred to as E&O, product or professional liability insurance, this form of coverage assists you financially when you’re faced with legal action regarding your products or services.
E&O is not part of a standard business owners’ policy (BOP). If you simply depend on a BOP to address all insurance needs, you could be exposed to the following risks.
Complaints About Products and Services
Whether you offer a physical or intangible product, several issues may arise:
- A product malfunctions or prematurely experiences wear and tear.
- A product does not last or operate correctly in certain conditions.
- Your product used bits of stolen code or work from a third-party partner, who’s now serving your client with a lawsuit.
- A client claims your product harmed their business’s finances or reputation.
E&O does not serve as blanket coverage across all complaints. For instance, policies may deliberately exclude wear and tear or products and services introduced prior to the start of your policy may not be covered.
Breach of Contract and Negligence
Businesses of all sizes draw up contracts. In these cases, a client can claim you were negligent or failed to fulfill your contractual obligations. These complaints can arise from:
- Not delivering a product or service by the established deadline, even if a third-party entity is holding up your process.
- Mistakes or errors in the work completed.
- The work is not up to the client’s standards of quality.
- Your product was tampered with or experienced a recall.
- You made marketing claims you did not fulfill.
- Contamination occurred.
- Providing the client with a product but not supplying directions for proper use.
Whether you’re developing an app or constructing a building, your clients depend on you to get work done by the promised deadline.
As such, you need to anticipate lags from third-party vendors, which can be an issue with sourcing parts, equipment failure or weather-related incidents slowing down production.
Without a solution in place, you could be faced with several complaints and lawsuits.
Although separate cybersecurity and data breach insurance exists, these situations may be rolled into your E&O coverage. Today, all businesses depend on computers, networks, and electronic storage to some extent, so their data is easily accessible to malicious hackers.
Unfortunately, while big businesses have often been the target, smaller entities look like lower-hanging fruit. You’re less likely to have a dedicated cybersecurity team and your network often contains multiple, easy-to-exploit vulnerabilities.
Restoring a business can take nearly a million dollars after an attack and it’s estimated that security breaches cause over 60 percent of all small businesses to close.
You might do everything right, yet a customer still makes a claim. In turn, you’re faced with a lawsuit and need to hire a lawyer to defend your company in court.
As false claims can happen to anyone, it’s important you’re ready to pay for legal fees and any financial fallout in case this accusation becomes serious. E&O insurance provides assistance to get through this incident and uphold your reputation.
Do you have E&O insurance for your small business? To discuss policy options with an Ion Insurance agent, contact us today.