Professional liability insurance

The following information can help you determine what type of insurance you should consider to fully protect your business:

Some business owners believe that if they structure their company as a Limited Liability Corporation (LLC) that they then don’t need to purchase E&O insurance. But this simply isn’t true. An LLC protects the personal assets of the business owners from litigation.

So if a lawsuit is filed against the company, the owner won’t be personally at risk. But an LLC does nothing to protect the business itself from litigation.

Meaning if a client won a breach of contract lawsuit, then without E&O insurance the assets of the company including cash, equipment and materials would have to be liquidated in order to satisfy the unfavorable judgment.

E&O insurance pays the costs of any litigation rather than the company having to do so.

Another common misperception is that General Liability insurance covers the same claims that would be covered by E&O insurance. General Liability, however, typically only protects against physical damage to either a person or property.

So if a person is hurt while visiting your business, General Liability would pay for those injuries or for any litigation resulting from the incident.

E&O insurance, on the other hand, protects against financial damages that your business causes as a result of the services provided. So say, for example, your insurance company fails to collect the proper signatures on an application.

Errors and Omissions insurance would protect your business from litigation or would pay the fees resulting from the oversight. In some instances, both a General Liability policy and an E&O policy are necessary to fully protect your business.