Get your best commercial errors and omissions insurance quote for free

What is commercial errors and omissions insurance?

There are several kinds of insurance that offer financial protection to businesses when they face claims by third parties. One of these is commercial errors and omissions insurance, which provides coverage if a company is hit with a specific type of third-party claim: those that allege issues with the services the business provided. In some industries, this type of insurance is referred to as professional liability insurance.

Picture this scenario: a corporate lawyer drafts a contract for a client. The lawyer fails to include a clause that provides a clear legal basis for the client to claim financial compensation from the business partner in the event of a contract breach.

A few months later, the contract is breached, and the client can’t collect restitution from their former business partner. The client files a lawsuit against the lawyer for professional negligence.

Errors and omissions insurance would help the lawyer pay for the legal fees associated with defending the suit. This type of coverage would also help him pay the damages the court awarded to the plaintiff.

If you already have a commercial general liability insurance policy, you might be wondering whether that overlaps with the coverage provided by errors and omissions insurance. Unfortunately, the answer is no: while general liability insurance offers business owners financial protection against most types of third-party claims, you need to purchase a separate errors and omissions policy to get coverage for third-party claims that specifically allege issues with the services you provide.

What kinds of businesses need errors and omissions insurance?

Businesses are generally not required to have errors and omissions insurance in Canada, but we highly recommend this type of coverage if your company offers services or advice to clients and customers.

Errors and omissions insurance is optional for most kinds of businesses, but for some professions – real estate agent or insurance agent, for example – this type of coverage is mandatory.

Physicians in Canada cannot practice without medical malpractice insurance, which is a type of errors and omissions insurance that is tailored for the profession. Errors and omissions coverage for professionals in fields like law, medicine, and engineering is referred to as professional liability insurance.

Why is errors and omissions insurance highly recommended?

Simply put, legal bills rack up fast. You’re not guaranteed a favourable outcome in court, but even if a court rules (or a jury renders a verdict) in your favour, you are responsible for paying the legal fees associated with defending the claims against you. If you opt to settle with a client or customer, or a court rules in their favour and awards them damages, you could be on the hook for even more money.

These financial losses can be devastating for many business owners. Errors and omissions insurance ensures that you won’t have to pay entirely out of pocket when you face third-party claims over the quality of your services. It ensures you have substantial resources to tap into, so you can fight or settle claims with minimal damage to your finances.

What’s not covered by errors and omissions insurance?

While errors and omissions insurance offers financial protection against third-party claims over your company’s services, certain types of claims are exempt from coverage. These include claims related:

• Price guarantees or estimates: Claims arising from your company’s failure to honor price guarantees or estimates provided to clients are not covered by errors and omissions insurance.
• Incorrect estimates of financial returns or profit: If your company provides incorrect estimates regarding potential financial returns or profits, any resulting claims will be exempt from coverage under errors and omissions insurance.
• Violations of securities laws:  Claims related to violations of securities laws, such as insider trading or misrepresentation of investment information, are not covered by errors and omissions insurance.

Some types of third-party claims are not covered by errors and omissions insurance but are covered by other types of insurance policies instead. These include claims related to:

• Property damage or bodily injury. To get coverage for kinds of claims, businesses can opt for public liability insurance or commercial general liability insurance
• Dishonest, fraudulent, or criminal acts. These kinds of claims are covered by crime insurance
• Employee injury. Employee liability insurance covers these types of claims

Common types of errors and omissions claims

The types of third-party claims that are typically covered by errors and omissions insurance include those that allege:

• Negligence
• Misrepresentation
• Failure to deliver or provide a service
• Delays
• Inaccurate advice
• Loss of documents

Let’s say an individual is looking to sell one of his properties to a prospective buyer. The seller hires an appraiser to conduct multiple appraisals of the property. The buyer’s bank relies on these appraisals to make the decision to extend financing to the buyer, who purchases the property. Later, the buyer defaults on his mortgage and the bank starts foreclosure proceedings. The bank discovers the appraiser had assessed the wrong building. The bank sues the appraiser, alleging negligence, and the court awards the bank damages.

Without errors and omissions insurance, the appraiser would have had to pay out of pocket to defend the lawsuit and cover the damages that the court awarded to the bank – a sum totalling about $90,000. Because he had an errors and omissions policy, however, the appraiser’s legal costs were covered.

How much does errors and omissions insurance cost?

The cost of an errors and omissions policy will depend on several factors. These may include:

• The services your business offers
• The size of your company
• Your industry
• Your annual and projected revenue
• The number of employees you have
• How many years of experience you have in your field

Speaking with an insurance professional is the best way to get an estimate for errors and omissions insurance.