Important Errors & Omissions Clauses to Consider Before Buying

What is Errors & Omissions Insurance and What Does It Cover?

Errors and omissions insurance, more commonly termed E& O insurance is a type of professional liability insurance. This insurance type protects businesses, their employees, workers, and other professionals against third-party claims accusing the insured of inadequate work or negligent actions.

Broadly, E& O insurance covers:

- Mistakes, errors, or lapses incurred during the course of work

- Inability to meet the service quality as promised or failure to meet the project/work deadline.

- Professional negligence

- Inability to meet a specific standard of care, maintenance, etc. as promised or as required

- Breach of contract

Errors and omissions insurance usually covers legal and court expenses regardless of the insured (company) being found guilty of the matter at hand.

Errors & Omissions Clauses

Understanding the clauses of an insurance contract is very crucial. The clauses provide a framework within which the insurance contract performs and hence, has a huge impact on the insured.

The errors & omissions clauses help safeguard the interest of both the parties, insurer and the policyholder. The clauses outline the responsibilities of the insurer and the policyholder. They even mention conditions under which claims may or may not be paid.

Some Common Errors & Omissions Clauses Include:

1. Operative Clause

This clause mentions the name of the insurer (insurance company) and the name of the party who applied for the insurance policy (policyholder). Operative clause clearly mentions that the insurance is indemnity based. It states that the insured shall pay compensation to the policyholder in case of a legit claim within the purview of the policy, within the jurisdiction of the country.

2. Insuring Clause

In continuation with the above clause, this clause mentions that the insurance company shall pay the claim on behalf of the policyholder. However, the claim should arise solely from the insured party’s professional services. It is to be noted that the claim shall be considered valid only if it is made within the tenure of the policy and in a written format.

3. Extended Reporting Period Clause

Under this clause if the policy is cancelled, the policyholder has an option to pay extra premium and extend the coverage of the policy term to a certain period.

4. Authorization Clause

This errors & omissions clause provides authorization of the policy to the insured organization (policyholder). Authorization in terms of premium payment, termination notices, endorsements, etc. It also mentions that the insured agrees to this clause.

5. Limit of Liability and Deductible Clause

The insurance company under the errors & omission clause specifies the maximum limit of liability for the loss that can be covered under each claim.

6. Policy Dispute Clause

The clause mentions that in case of any dispute arising out of the interpretation of the terms and conditions, proceedings would be subjected to Indian Law. All the disputed matter shall be in accordance with the law and practice of the court.

Conclusion

Errors & Omission insurance policy is not mandatory to be carried by the company or professional. However, it is a wise decision to help you protect your business and cover the costs of legal damage. It is always recommended to read and understand the errors & omissions clause(s) before buying an insurance policy.