Understanding Errors and Omissions (Malpractice) Lawsuits: What Small Business Owners Need to Know

Errors and omissions (E&O) lawsuits, also known as professional liability or malpractice lawsuits, are a common concern for small business owners. These types of lawsuits arise when a professional or business is accused of making a mistake or failing to provide a service that causes harm to a client or customer. Understanding the causes of E&O claims, the importance of having an errors and omissions policy and the steps to take if you are served with a complaint can help small business owners protect themselves from financial and legal repercussions.

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Causes of E&O Claims

E&O claims can stem from a variety of situations, including:

  1. Providing incorrect or incomplete advice to a client
  2. Failing to properly complete a project or deliver a service
  3. Making a mistake in the course of providing a service
  4. Failing to disclose important information to a client
  5. Violating a professional code of conduct

These types of claims can be brought against a wide range of professionals and businesses, including financial advisors, insurance agents, real estate agents, architects, engineers, accountants, and other service-providing businesses. In some cases, E&O insurance policy claims may also be brought against a business for not providing a service it was contracted to provide.

What Happens after You're Served with an E&O Complaint?

If you are served with an E&O complaint, it is important to take immediate action. The first step is to consult with an attorney who specializes in professional liability cases. They can help you understand the specific allegations against you and advise you on the best course of action.

Next, it is important to gather any relevant documents or evidence that may be used in your defense. This may include contracts, client communications, and records of the services you provided. It is also important to review your errors and omissions policy to make sure you have adequate protection in case of a lawsuit.

Once you have a clear understanding of the case against you, you can begin to build your defense. This may involve negotiating a settlement with the plaintiff or, if necessary, taking the case to trial. The legal process can be time-consuming and can be costly as well. It's important to be prepared for the financial and emotional burden that comes with a lawsuit.

How to Win an E&O Lawsuit?

Winning an E&O lawsuit requires a thorough understanding of the legal and factual issues involved in the case. The key to success is to build a strong defense that demonstrates that you did not act negligently or that any mistakes or omissions were not a proximate cause of the plaintiff's harm.

Some strategies that may be effective in defending against an E&O claim include:

  1. Showing that you provided your services in accordance with industry standards and best practices
  2. Demonstrating that the plaintiff was aware of and accepted the risk of any mistakes or omissions
  3. Proving that the plaintiff's own actions contributed to the harm they experienced
  4. Presenting evidence of your professional qualifications and experience
  5. Showing that you have a history of providing quality services and satisfied clients

It's also important to remember that even if you are successful in defending yourself in court, the cost of the legal proceedings can still be significant. That's why it's important to have adequate errors and omissions policy coverage to help cover these costs.


E&O lawsuits can be a significant concern for small business owners, but understanding the causes of these claims and taking the appropriate steps can help to minimize the financial and legal risks. By working closely with an attorney and building a strong defense, small business owners can increase their chances of winning an E&O lawsuit.

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