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Published On: Thu, Feb 7th, 2019

The Difference Between Errors and Omissions Insurance and General Liability Insurance

As a contractor, your clients trust your counsel and services. They expect these services to be professional and as such, they demand nothing short of what they have paid for. For instance, if you are hired as a professional electrician for a minor home electrical job, the client has complete faith in your ability to replace outlets, wiring, or anything else that needs taking care of.

But let’s suppose that negligence on your part leads to a faulty connection. If the house burns down, or if someone experiences bodily injury due to a shock, you should expect a lawsuit from this client. It will be very difficult for small businesses, let alone independent contractors, to pay for these claims out of pocket. Even if you are lucky enough to afford to pay for both the actual damages and the defense costs, you will probably place considerable strain on your ability to run your business smoothly.

All contractors should have general liability insurance. However, another type of professional liability insurance – commonly referred to as an errors & omissions insurance policy – remains optional. If we consider the scenario above as an example, you’ll need both general liability insurance and e&o insurance to address all the claims a plaintiff raises.

While both are considered liability coverage, there is a distinct difference in what they cover. Let’s look at each policy in detail.

photo supplied, courtesy of guest blogging network

Errors & Omissions Insurance – Also known as professional liability insurance, an e&o policy is a form of liability insurance coverage that protects service providers against negligence claims that come from unsatisfactory planning. Omitting crucial information relevant to your client, malpractice which results in financial loss or property damage, and data breaches are all valid examples of errors and omissions. If your actions are deemed negligent by a client, there are capable of launching a civil lawsuit against you and your business.

While sometimes the claims can be true, there are cases where the allegations are falsified. Either way, you need to be prepared to contest such lawsuits, especially where legal fees are concerned. In the event that the client is awarded their claims, omissions coverage cushions you from the financial expense of bearing the burden of court costs and claims awarded to your client, if applicable. E&O coverage does not include coverage for criminal prosecution, however, so bear that in mind as discuss your insurance needs with your insurance agent.

Some industries require their professionals to have this type of insurance. This coverage may different forms for different professions. For instance, a doctor’s professional liability policy may be slightly different from a contractor’s or an advocate’s, due to the differences in professional services and their associated risks. In each profession, the scope of coverage and limits will differ.

 

Some of the scenarios where an omissions policy comes in handy for contractors include:

  • A plumbing contract where the outcome created more leaks or more broken pipes
  • A painting project is deemed useless after paint came off within a few days
  • A masonry job is deemed unsatisfactory after the mortar crumbles away on a newly-laid wall

In the above scenarios, negligence on your part as a professional leads to monetary damages for the client. No matter your reason or your excuse, you should expect claims raised by the client to be honored at your expense, unless you have an e&o insurance policy that successfully transfers risk away from you to your insurance provider.

General Liability Insurance – This is designed to protect contractors against claims that are the result of bodily harm and damage to property experienced by a client or third-party, such as a subcontractor. The insurance company assumes responsibility for any damage or bodily harm to third parties, as a financial service paid for by a monthly or annual premium. Additionally, general liability insurance is a legal requirement for contractors.

The nature of work for contractors poses a risk to others within the area of operations. For instance, a contractor working on a client’s roof needs to climb onto the roof with his toolbox. If any tool falls on to a vehicle, damaging the windshield, the client or third party will raise a compensation claim. This claim falls under ‘damage to property’ clause which is within the policy wording associated with this coverage. Hence, the relevant insurance company will pay for this claim as per the limits of the coverage.

In another instance, the toolbox could fall onto a real estate agent surveying the property, causing them bodily harm. This person will need medical attention, which will be paid for by the general liability insurance plan. While these are all accidents and unfortunate situations, you will ultimately be held responsible. Thus, you must have solid general liability insurance for such incidents.

There are benefits associated with these two insurance policies besides payouts for legal expenses and awarded claims. Both policies can help grow your business because some clients will be shy to work with you if you are lacking liability insurance or if your limits are too small. Allowing your insurance broker to combine both individual policies into one umbrella package also allows you to save on both your omissions insurance cost and your general liability cost, which is especially useful if you’re running on a budget.

As a business owner, practicing proper risk management should be the top priority. Don’t wait for an incident to happen before you decide to insure your business. Take up all the necessary insurance necessary whether it is a legal requirement or not. You’ll be surprised at how much you’ll save in terms of money and resources when a claim occurs. After all, it’s the peace of mind you deserve for someone who works as hard as you do. Feel free to contact ContractorsLiability.com today for expert advice on liability insurance and other insurance plans for general contractors!

Author: Morissa Schwartz

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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