The 3 Most Common Mistakes Consulting Firms Make When Purchasing Professional Liability (E&O) Insurance
Professional liability (E&O) insurance is necessary coverage for any business providing a service to a client in exchange for a monetary fee. An E&O lawsuit can be a massive challenge for a consulting firm to overcome. E&O insurance provides needed protection to shield the organization from financial harm when confronted with an E&O lawsuit. Let’s explore three pitfalls to avoid when purchasing E&O insurance.
Pitfalls to Avoid When Purchasing E&O Insurance
01. Not Having all Your Services Covered
Every E&O policy has a section that defines the services provided. Be sure that all your firm’s services are included. If 90% of your revenue is generated from management consulting but 10% comes from accounting services, make sure the insurance company is aware of both. Otherwise, the accounting services will likely be excluded. Be sure to discuss your business in detail with your broker to ensure all your services are known and covered appropriately.
02. Not Purchasing “Prior Acts” Coverage
If your consulting company is buying E&O insurance for the first time but has been providing services for a few years, it’s important for you to purchase “prior acts” coverage to make sure all their previous work is covered by the new policy. If prior acts are not purchased, only work conducted from the effective date of the policy forward will be covered, leaving the company exposed to legal actions from past work. Prior acts coverage can be purchased with a retroactive date or full coverage.
03. Not Reading the Policy Exclusions
Like any insurance policy, all professional liability policies come with exclusions. It’s important to review them when you first purchase the policy. E&O policies exclude coverages that are intended to be insured through separate policies including employee injuries, auto accidents, property damage, and employee lawsuits. E&O policies also exclude illegal acts and intentional acts. A best practice for any business is to ensure an understanding of all insurance policies in force and what exclusions can limit coverage.
In Summary
For businesses offering any type of service, professional liability coverage is a necessary means of protecting the business from past, present, and future errors and omissions arising from performance on client engagements. With just a few simple tips, your business can avoid E&O pitfalls that can leave organizations high and dry when they need coverage the most.