Limiting Errors & Omissions Exposures

Errors & Omissions insurance is essential for every business. Should a client question a service you provided or claim you failed to deliver that service, this coverage keeps your business afloat through costs related to judgments, settlements and legal fees. The coverage applies even if the client’s claim has no substance. Regardless of the circumstances, your business could end up bankrupt by a single legal claim without E&O insurance.
Common Exposures
Every business that provides a fee- or project-based service to a client has some degree of E&O exposure. These factors are often related to:

• Contracts, including unclear terms leading to confusion, breaches of contract or disagreements that arise after a job begins.
• Performance, including if your work lived up to the contract details or the client’s expectations. In certain instances, a client may take a business to court, alleging the work performed was not up to their standards. As one popular example, a business working with a third-party IT company claims the programs or hardware installed malfunctioned and harmed their business, causing them to lose customers or sales.
• Allegations involving your employees, including dishonesty, false or incorrect statements.
• Internal risk control, which causes workers to not perform duties related to a contract or an agreement to go unfulfilled.

Before you’re faced with a claim, you need to work with your staff or clients to discuss performance, establish clear in-house policies or draw up a contract all parties understand.
Contracts
Contracts between two businesses should further include an E&O clause, which anticipates the potential for these types of lawsuits and potential insurance claims. Your business may want to consider:

• Limiting damages: This maximum amount should be specified in the contract. For the interest of your business, it should be no higher than what the client paid for the job.
• Restrictions: For instance, many E&O clauses specify that a client cannot sue them for lost profits. Let’s say a business builds a website for a client, the website goes down for a short period months down the line and the client tries to sue the business, alleging the website’s downtime caused them to lose sales or damaged their brand.
• Omissions: Your contract may further specify that the client cannot sue your business for any actions your business failed to take.
• Specified Liabilities: Are there some errors that could surface more than others, such as a missed deadline or potential software issues? If you anticipate something in particular – for instance, a deadline that gets pushed back – specify this liability in your contract, rather than putting together a broad omissions clause.

Other Factors
Contracts and policies only cover part of a business’ operations. To anticipate any other instances that could delay your operations and any services you provide to a client, consider adding the following policies:

• Equipment Breakdown: A common exposure for many businesses, your operations may be halted by a downed phone system or computer network or machinery issues that hamper your production.
• Floods: Even if you don’t live in a designated flood zone, flood-related damages could still possibly close your business for an extended period.
• Personal Property and Building Contents: If your commercial property coverage doesn’t include these, make sure to supplement your policy to consider everything within your facility. Otherwise, stolen or damaged documents could lead to project delays or contractual disagreements.

Does your business have the proper amount of E&O coverage? In the event that a client dispute occurs, be sure to round out your suite of business policies. To go over your company’s insurance portfolio with a professional, give us a call at 203.439.2815.