Every business has unique risks that can seriously harm its operations if not properly addressed. As a business utilizing technology to produce and deliver products or services, it’s important to recognize and take precautions against risks that your commercial general liability (GL) coverage doesn’t include. Professional liability coverage, also referred to as errors and omissions (E&O) coverage, is essential for companies using technology, because it includes coverage for third-party financial harm.
Who needs Professional Liability/E&O coverage?
Most companies today utilize technology in some part of providing a service or product and need to take necessary precautions. To ensure your company is properly insured, you should conduct a full risk-management assessment. No one is more skilled at helping you identify and manage your risk exposures than a licensed independent insurance agent. If you don’t already have one, find an agent near you today.
What does E&O Cover?
E&O manages risks resulting from providing a product or service to a third party, which are not covered by a GL policy. Specifically, E&O protects your business in the event a third party suffers a financial loss due to your product or service not performing as it was intended or expected; this includes the event of an error or omission committed by your company. These policies also cover defense costs in the event of litigation. E&O coverage would apply in the following situations:
- A mistake was made and an error in the code of a website or program your company produced isn’t found before it is implemented. A third party depends on this product or service to operate its business and its operations are stalled due to the error, causing them a financial loss.
- A part your company produces is installed in a piece of equipment. After a short amount of time, the component stops working, causing the equipment to fail, but otherwise not damaging anything or hurting anyone. The third party that relies on this equipment for its business has to stop operations and suffers a financial loss.
- One of your employees recommends that a client adjust its network. The client follows the advice and its network crashes as a result, causing a time and financial loss for its operations.
In all of these cases, GL coverage would not cover a claim or any litigation costs because of the presence of an error and the lack of resulting physical damage to the third party’s property. It should be noted that E&O policies usually exclude product recall, but some will accept damages for loss of use of a failed product.