What is E & O Insurance?
Errors and Omissions (E&O) Insurance covers you or your company in situations where a client decides to take legal action against you for a service you provided – or failed to provide. There are a number of occupations that are particularly susceptible to client lawsuits. Even if you are the most meticulous professional in your field, the reality is that mistakes happen. Even if you are not at fault for anything, clients can potentially drag your through long, exhausting lawsuits. Going without the proper coverage simply isn’t worth the risk.
Who needs E&O coverage? There is a wide range of jobs and industries in which obtaining this coverage is advisable. While it’s impossible to make an exhaustive list of every occupation that needs it, here are some of the more common ones:
- Salon Owners
- Real Estate Agents/Brokers
- Software Developers
- Graphic Designers
- IT Consultants
- Investment Advisors
- Management Consultants
- Insurance Professionals
As you can see, this is a rather large and diverse group of jobs. It’s also important to keep in mind that just because your chosen profession isn’t listed, doesn’t necessarily mean you shouldn’t seriously consider E&O protection. So, if you didn’t see your job or field above, how do you know if you need coverage?
The short answer is that there is no substitute for personalized, professional advice from an organization that specializes in providing counsel and advice about E&O. There are too many nuances and contingencies in Canadian law to thoroughly cover them all here. In addition to the obvious advantages of finding someone with expert industry-specific knowledge, their experience will also be invaluable to you. In other words, this article is not a substitute for professional legal advice.
However, that doesn’t mean we can’t give you a general idea of what factors should be considered. If you take a look at the bullet list of jobs, some of them might seem completely unalike. After all, what do doctors and salon owners have in common? Dentists and real estate agents?
While they may appear dissimilar, the one thing they all have in common is that they have clients who are paying for a service. Those clients, presumably, expect a certain level of quality or accuracy. Doctors aren’t paid to misdiagnose their patients, salon owners shouldn’t be ruining their customers’ hair, and dentists are supposed to protect their patients’ health with minimal or no pain during the process. These all seem like reasonable enough expectations, but let’s have a look at this through a different perspective.
Suppose you are a doctor working in Toronto, and you see an average of 50 patients per day. While this number is on the high end for most locations, it’s certainly not unheard of, and plenty of doctors see more than this. Now, suppose you work 340 days per year. That comes out to a grand total of 17,000 patient visits per year. Of course, that doesn’t mean you’ll be seeing 17,000 different patients. Many visits – probably the majority, in fact – will be repeat visits. Nevertheless, it’s still 17,000 opportunities for you to make a mistake.
Now, let’s assume you are an amazing doctor. In fact, you give the correct advice/diagnosis/prescription 99.9% of the time. Put another way, you do the right thing at your job 999 out of 1,000 times. The problem is, you’re getting a lot more than 1,000 patient visits. Even with your stellar accuracy rate, your probability of making a mistake at some point during the year are virtually guaranteed.
Don’t believe me? The math to prove it is fairly simple: 100 – (0.999^17,000) = 99.99999996%.
To be clear, that’s a 99.99999996% chance that you will make an error in your medical practice at some point during the year. It might seem hard to believe, but that’s what happens when you start dealing with large numbers. Even the best practitioner in a given field isn’t perfect – we’re all human, after all.
In all fairness, the numbers used above aren’t intended to represent the likelihood that a doctor ends up facing a malpractice lawsuit during a given year. First of all, if you consider all the mistakes a doctor could make, some of them won’t be serious enough to gain any major traction as a lawsuit. Second, even if you filter just the serious mistakes, not all patients who potentially have a lawsuit are going to pursue one. Finally, even among the credible lawsuits that are pursued by patients, not all of them will ultimately find the doctor guilty of malpractice.
However, it’s a useful thought exercise for thinking about probabilities. More specifically, it highlights the fact that even someone who is excellent in their field is going to make mistakes at some point. You may be great at what you do, but you’re not invulnerable. When considering these caveats, it's also worth considering whether 99.9% accuracy is realistically achievable in your field.
Do all service providers require E&O Insurance? Not necessarily. Some professions have standard contracts which contain clauses that prevent clients from suing the contractor or service provider. However, it’s always better to consult with an E&O expert to help determine what your potential liabilities are. Don’t just assume that you don’t need it. For more information on what type of coverage is typically needed by various professions, please continue reading our sections on Malpractice Liability Insurance, General Liability Insurance, Professional Liability Insurance, and Commercial General Liability Insurance.
On a final note, while E&O is vital for many professionals, we should also clarify some of its limits. It does not cover any type of malicious, illegal, or dishonest actions. While this seems like common sense and should go without saying, it's a disclaimer we feel obligated to include.