General Liability Vs. Errors & Omissions Insurance - Explained
Unless you have specific certificates of liability insurance you must comply with, you may find it hard to understand what insurance policies you need as a business owner.
There are many options, but you ultimately want to purchase the most relevant insurance policies for your business—the ones that you have a real chance of paying a claim on one day.
From part-time businesses to global corporations, almost all businesses purchase commercial general liability insurance. It is the most common commercial insurance policy that exists. Errors and omissions insurance (also called E&O) is less commonly obtained, but for some professionals, it is the most important insurance policy they can purchase.
For example, most accountants aren't really concerned about causing bodily injury to someone or damaging property (these are both risks covered by general liability insurance). Instead, they are worried about an accounting error causing a client financial harm (covered by errors and omissions insurance).
In certain professions, making a mistake on the work you are paid to perform is far more likely and far more costly than whatever bodily injury or property damage is likely to occur.
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The insurance you need is ultimately determined by the risks you’re exposed to while running your business. With that in mind, here is everything you need to know about general liability vs. errors and omissions insurance.
What General Liability Insurance Covers
Commercial general liability insurance covers liability arising out of your business causing bodily injury to a third party (someone who is not you or an employee of yours).
Example: A customer trips and falls while on your premises, resulting in an injured knee that requires medical procedures and time away from work.
The general liability policy also protects you against property damage that you cause to others through your business operations.
Example: Your ladder falls over during a project, resulting in damage to the client's building and furniture.
This coverage is critical for any organization that manufacturers or sells a tangible product. It is a portion of the general liability policy that covers damages occurring after you have sold the product and it is in the hands of the public.
Example: The product you make or sell malfunctions, resulting in the injury or death of someone.
Completed Operations Liability
Similar to product liability—and shared on the same section of the general liability policy—completed operations coverage protects against liability arising from your completed project. The most common use of this coverage is in the construction industry, where damage might occur as a result of a contractor’s completed work. This coverage can, however, be used for many other types of business.
Example: A plumbing contractor makes a mistake that results in a leaking pipe, which causes water damage to the rest of the house.
What Errors And Omissions Insurance Covers
Giving Bad Professional Advice
An E&O liability policy covers advice that you give to clients while in the process of rendering your professional services.
Example: A marketing firm advises their client about an advertising campaign to promote their new product release. The campaign does not deliver on promoting the product; it also harms the client’s reputation due to an oversight of the advertising firm.
If your company designs products or structures for others and releases something with a design flaw, E&O insurance policies can cover these mistakes.
Example: A draftsman is contracted to design up the drawings for a manufacturing company. Due to a flaw in these technical drawings, the product launch is delayed, causing significant financial damage to the client.
Professional Errors And Mistakes
Professional mistakes can happen to any business; the problem is the unpredictability of what those mistakes can cost your clients. An E&O policy can cover certain errors and mistakes in the course of your professional services. The errors that the policy covers will depend on the specific needs of the insured business. For instance, an attorney's E&O policy will cover mistakes specific to the business of law.
Example: A business hires a law firm to handle a lawsuit. Due to an oversight, the law firm forgets to file paperwork on the correct date, resulting in a summary judgment against their client.
It's not a question of which policy you should get. It is whether you need both policies.
As with all insurance, you shouldn’t be asking, “Which policy should I purchase?” Instead, you could ask, “Which combination of policies should I purchase?”
Keep this in mind when thinking about general liability vs. E&O.
First, we recommend that every business purchase general liability insurance. It is the most common commercial insurance policy and one that is the core of all business insurance protection. In fact, most E&O insurance companies require you to have general liability insurance before they will issue a policy.
What you should ask is whether your business needs errors and omissions insurance, which is a more specialized insurance policy.
That is a decision that you must make based on your tolerance for risk and your exposure to the coverages provided on an errors and omissions insurance policy.
Examples Of Businesses That Need Both Policies
Certain business types need E&O insurance more than others. Usually, these businesses provide professional services to their customers that could cause financial damages.
Although not an exhaustive list, here are some examples of businesses that often purchase E&O insurance:
- Marketing and advertising professionals
- Technology businesses
- Printing companies
- Event planners
- Law firms
- Travel agents
- Mortgage brokers
- Certain construction contractors
LandesBlosch Recommendation: Even if you don't need E&O insurance, you should require any business providing you with professional services to carry it. If they harm you or your business while providing you professional services, their E&O policy will give you the assurance that if they make a mistake, you have an avenue to pay for your damages.
Examples Of Businesses That Do Not Typically Purchase E&O Insurance
Although your need for E&O insurance is dependent on your type of business, some businesses rarely need or purchase E&O:
- Retail stores
- Trucking and transportation
- Certain manufacturers
- Entertainment venues
- Building owners
When deciding on E&O vs. general liability insurance coverage, you need to take a deep dive into what your actual exposures are. Without doing so, you might risk either wasting your money or having a large risk that is not covered by your insurance program. Let us know if you need help with choosing which policies you need by either contacting us or starting an online quote.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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