Raise your hand if you’ve never made a mistake. No one? That’s what we thought.
To err is human, and mistakes happen to all of us. Errors and omissions (E&O) insurance protects your small business from liability in the event of claims made against your business for mistakes, missed deadlines, or important omissions in the work you conduct for your clients.
For some small businesses, even small mistakes can lead to serious repercussions for their customers. Having E&O insurance to protect you from liability can provide the peace of mind that you won’t face huge financial repercussions in the event of a lawsuit resulting from an honest error.
In this article, we’ll go over exactly what errors and omissions insurance covers, how to purchase coverage, and how to determine if this type of insurance policy is advisable for your small business.
What is Small Business Errors & Omissions Insurance?
Errors and omissions insurance is a type of liability insurance that protects your small business if your client decides to make a claim against you as a result of your negligence, mistakes, omissions related to the delivery of your service, or failure to deliver the service properly.
A claim of this nature against your business can result in costly legal fees and damages owed to your client. If you have E&O insurance, your policy will cover the bulk of these fees and damages.
Who needs errors and omissions insurance?
Anyone who offers services or professional advice through their business should seriously consider errors and omissions insurance.
It’s worth noting that you don’t technically need this type of insurance if you have a small business in Canada, because it isn’t a legal requirement. However, if you offer professional services or advice, E&O insurance can potentially save you a great deal of money and difficulty down the line.
What is covered?
Errors and omissions insurance policies cover legal fees, damages, expenses, awards, and settlements that you may incur if you are sued for your professional services or advice.
These fees and damages can result from lawsuits pertaining to:
- A breach of the obligations in your contract
- Negligence while carrying out your professional duties
- Oversights or errors in the work you do for a client
- Providing inaccurate advice to a client
- Delays in your work
- Losing documents
- Breaching the confidentiality of a client
- Failing to provide your service as promised
Additionally, there are some scenarios unique to the media and advertising sector that are covered by E&O insurance:
- Libel and slander
If any lawsuits result from one of the above scenarios, errors and omissions insurance can help you cover the bulk of your resulting expenses. Different policies may vary somewhat in terms of what they cover, so it’s important to compare the terms and conditions and have a thorough understanding of what is included in your coverage before purchasing it.
Why get errors and omissions insurance for your Small business?
Even if you’re highly skilled and experienced in your profession, errors and omissions can still happen. Unexpected events in your life may get in the way of your ability to deliver a service on a promised timeline, or a calculating error may result in inaccurate advice being provided to your client. Anyone can find themselves vulnerable to the risk of being sued.
In short, E&O insurance gives you the peace of mind that as long as your mistakes are unintentional, you aren’t likely to be on the hook for potentially very high legal bills and other damages.
How it works
Your insurance company may provide you with specific instructions in the event of a claim, but the general process will be broadly similar for most.
- Contact your insurance provider as soon as possible. Ideally, you will contact them as soon as you learn of a situation that may result in a lawsuit, even if it hasn’t taken place yet. You will be asked to provide a description of the claim and when it occurred, as well as information about your business and policy account number. Ask who you can contact to stay informed about your claim, and what timeline they anticipate for your case.
- Gather documentation. Any records or evidence that you have relating to your case should be gathered. These should be provided to your, though you may also have to provide some evidence to your insurer.
- Follow up with your provider. If necessary, follow up with your provider to determine when and how you will be paid out.
Small business claim example
Let’s say a design agency is hired to come up with the name, logo, and graphic elements for a new cereal brand. Once the cereal company has printed thousands of boxes, they receive a notice from another brand that their logo is too similar and therefore infringes on their trademark.
In this case, the cereal brand that hired the agency may sue the agency for conducting insufficient research to ensure its new brand wouldn’t infringe on existing trademarks or copyright. The brand may include the costs of all the packaging they had printed and the lost sales from having to pull products from the shelves in its claim.
Errors and omissions insurance would help the design agency cover legal fees, expenses, and damages that result from the case. Even if the case ends up in the design agency’s favour, at a minimum, the agency would still have to pay legal fees, which could amount to tens of thousands of dollars. E&O insurance would help cover these costs.
There isn’t a legal requirement in Canada to have errors and omissions insurance. You don’t have to buy this type of insurance for your small business, but it is strongly advised to anyone who offers professional services or advice through their business.
How to get errors and omissions insurance
To obtain errors and omissions insurance for your business, start by comparing policies and pricing for several different insurance providers. Your bank may offer this type of insurance, as will most insurance brokers.
Comparing different providers ensures that you find the one with the best coverage at the most favourable rate. For example, some insurance brokers may cater to larger businesses with pricing that’s unreasonable for most small businesses.
If you already purchase other insurance policies through a provider, such as general liability insurance, it’s worth asking about discounted rates if you buy additional policies through them.
Getting a quote
You’ll have to contact each insurance provider directly to obtain a quote. Websites may include an insurance calculator that calculates an estimate once you input some of your personal information. Otherwise, you’ll likely fill out a contact form which will be followed up with a quote by phone or email within a day or two.
Typically, you’ll need to provide information on the size of your business and how long you’ve been operating, your qualifications, and type of business. The larger your business is, the higher your premium is likely to be.
With several quotes, you can narrow your selection and may be able to negotiate your premium if you have a better quote from a competitor.
How long does it take to get a quote?
Some online-based insurance providers in Canada guarantee a response within 24 hours, while others may take a little bit longer to get back to you. However, you will generally hear back within a couple of days when requesting a quote.
When you do hear back, you may have a final quote based on the intake information you provided. More commonly, you’ll be asked to provide more information so that an accurate quote can be created for you.
Taking into account the communication back and forth that may take place from the time you contact an insurance company, you will typically have a final quote within two to five days.
Questions to ask your provider
Before signing on the dotted line and purchasing an E&O insurance policy, asking your provider these questions can help you make sure you understand important details about your coverage. Since insurance policies are typically lengthy and can contain quite a bit of legal jargon, it’s helpful to get answers to your questions in plain language. Here are some questions to consider:
- If I file a claim, what will my deductible be?
- Does anything change or impact the size of my deductible, or is it always the same?
- How many E&O claims did you deny coverage to in the past year?
- What is the most common reason for claims being denied coverage?
- What is the process for filing a claim?
- How long do claims typically take to process?
- Are there any coverage limits or restrictions?
- Are any discounts available for my policy?
How Ownr can help
If you choose to incorporate rather than register as a sole proprietorship, Ownr will make managing your documentation requirements a breeze. From creating your minute books to submitting annual returns on time, Ownr’s reminders and easy-to-navigate forms ensure you’ll never fall behind on these important obligations.
Mistakes can happen even to the most diligent and conscientious entrepreneur sometimes. Whether it’s because of a genuine error or an unexpected event that’s out of your control, your ability to deliver your services as promised can be jeopardized. If you find yourself on the receiving end of a lawsuit as a result, errors and omissions insurance can save you tens or even hundreds of thousands of dollars.
These massive financial burdens can potentially ruin your business, therefore if you provide professional services or advice, it’s strongly advisable to get E&O insurance for your small business.
Cost of errors and omissions insurance for small business
Different businesses have different coverage requirements. Errors and omissions insurance policies can be purchased with different coverage limits starting at $100,000 and up to $2 million and beyond, if needed.
The costs of an E&O insurance policy for a small business will depend on its chosen coverage limit and possibly other factors, such as the size and type of the business.
If you’re on the lower end of coverage requirements, expect to pay at least $250 annually for your E&O policy. For more accurate pricing, contact different insurance providers and request a quote.
Errors and omissions insurance FAQs
1. Do I legally need errors and omissions insurance?
The answer depends on your profession. Certain professions will require individuals to have errors and omissions insurance in order to practice, or even maintain their licenses. Other professions won’t legally require errors and omissions insurance, but while it is optional, it is still strongly advised for some businesses.
2. What’s the difference between errors and omissions insurance and general liability insurance?
General liability insurance primarily covers bodily injuries to non-employees on your property and damage to others’ property as a result of your business duties. Errors and omissions insurance, also known as professional liability insurance, concerns mainly the financial loss suffered by a customer as a result of any professional advice or services your business provided. They both protect against liabilities but cover different situations
3. How do I know if my small business needs errors and omissions insurance?
If you provide any kind of service or offer professional advice through your small business, you should consider getting errors and omissions insurance.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.