E&O insurance, also known as professional indemnity, is a type of professional liability insurance aimed at protecting you from financial loss, including errors or negligence of products or services. Claims can range from relatively minor matters, such as incorrect client information being input into database, to major issues, such as the information being included in a data breach. All companies are at risk of error and omissions claims, especially if they cause financial losses.
Errors and omissions examples can be far-reaching, as long as it's perceived that the company’s products were responsible for the damages in some way. Most E&O policies will cover the following types of claims and protect a company against any associated costs:
Clients can sue you for unintentional breach of contract if the delivered product or service does not align with the details stipulated in the contract. Being unable to meet contractual obligations can give a client grounds to sue for breach of contract and associated damages. This could cause financial harm to the company as well as reputational damage. If you host any contract information online, check that it’s up to date.
A misrepresentation claim is similar to a fraud claim. While a fraud claim is related to a company deliberately lying about its product or services to a client, misrepresentation refers to a company concealing certain pertinent information. Misrepresentation may also involve a company making false statements to make its products or services appear more attractive or cost-effective than they may actually be. For example, not disclosing additional fees while providing an online quote could face a misrepresentation claim.
Clients can pursue E&O negligence claims if a company’s products or services cause a negative impact. These claims usually are related to errors in the company’s code or service which causes harm to the client. Negligence claims also typically accuse the company of failing to practice with reasonable care. Negligence claims can be costly, leading to other significant damages for a client. For instance, leaving a company laptop containing client data on a bus or in taxi could result in a negligence claim.
An E&O policy can be particularly useful for copyright infringement claims. A thorough policy should cover legal expenses if you are being accused of infringement or indeed accusing another company of attempting to steal a copyright from you. Such a policy may cover any legal fees and associated costs. Depending upon the product and service you provide, you may need an E&O policy covering defamation. Defamation refers to any statement or claim a business makes that is intended to harm another businesses or individual’s reputation. Defamation goes beyond written words and can also include published photography or even cartoons. In this case, defamation is likely to occur online. Any statement on a company’s website or official social media accounts that harms another business or individual can be the cause of a defamatory claim. If you allow public comments on your website, you can also face a vicarious liability claim relating to defamation if you don’t remove a defamatory post. An errors and omissions policy may cover cases of either direct or vicarious liability for defamation claims.
Cyber crime represents a particularly malicious cause of error and omission claim. As you are likely to handle significant amounts of client data, in the event of a cyber-attack, like a data breach, you could face potential lawsuits from numerous clients, regulatory fines, and costs related to performing cyber forensics and data recovery. Following a cyber incident, clients could also file a lawsuit against you for issues such as negligence, poor performance, and not having the correct cover in place. In the case of cyber-crime, a basic E&O policy may offer some protection. In claims related to negligence or poor performance which allowed an attacker to attack a client directly, a basic E&O policy may cover your costs. However, basic E&O policies typically do not cover the loss of third-party data. In such cases, you would need a separate cyber insurance policy, which can provide more robust coverage in case of an incident like a data breach.