Clauses under Errors & Omissions Insurance Policy

We all would like to believe that as professionals, we are careful not to make silly mistakes on the job. No matter how good one is, alas, mistakes can sometimes be inevitable. If these mistakes lead to serious financial losses, an error, or an omission; insurance can come to your rescue. However, it is important to understand errors & omissions insurance clauses before deciding to purchase one.

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Errors & Omissions Insurance Clause

Clauses are important parts of an insurance contract. They outline the insurer's (insurance company’s) responsibilities to the policyholder, conditions under which claims may or may not be paid, and the responsibilities of the policyholder. It thus aims to safeguard the interest of both parties.

Some of the clauses under E&O insurance are:

Insuring Clause:

This clause mentions that the insurer shall pay the claim on behalf of the policyholder if the claim arises solely from the insured’s professional services. Also, the claim should be made within the policy tenure and reported in a written manner.

Extended Reporting Period Clause:

This errors & omissions insurance clause mentions that if the policy is cancelled or not-renewed, the policyholder by paying an additional premium, has the right to extend the coverage of the policy term to a certain period. So, if a lawsuit is filed for an insurable event occurring while the policy was active, this clause shall provide coverage to the insured even after the policy is cancelled.

Authorization Clause:

As per this clause, once the policy is accepted by the insured organization, the said party shall act on behalf of each insured. This would include giving and receiving claim or termination notice, premium payment, receiving any return premiums, negotiation, endorsements (if any) or any other notice. This clause also mentions that each insured agrees to the insured organization acting on his/her behalf.

Limit of Liability and Deductible Clause:

The insurer specifies the maximum liability for the loss under each claim. The defense costs are usually part of the Limits of Liability and may reduce or exhaust this limit. Also, the errors & omissions insurance clause on the Limit of Liability and deductible mentions that only the covered losses are applied to the policy.

Policy Dispute Clause:

If any dispute arises relating to the interpretation of the terms, conditions, exclusions, limitations, etc., are agreed by both parties to be subjected to Indian Law. All matters arising in case of dispute shall be in accordance with the law and practice of the court.