Why E & O Is Necessary for the Self-Employed, Freelancer, Independent Contractor, or Entrepreneur
When you are self-employed, do you need Errors and Omissions (E and O) insurance? Probably.
Errors and Omissions Insurance is professional liability insurance that protects individuals providing advice or specialized services (i.e. you) from complaints of negligence. Doctors, attorneys, architects, accountants, financial planners and freelancers of all kinds need to carry E & O to mitigate potential legal costs.
Typically, E & Ocoverage focuses on financial losses causes by—you guessed it—errors or omissions in the product or service, and there are potential causes for legal action, such as physical injury, that would not be covered by an E & O policy. An accident that occurs on your property, for instance, would fall under “general liability” rather than “professional liability”; most solopreneurs who need E & O insurance will also have to carry some protection against general liability.
A single court case can easily bankrupt a freelancer, not to mention ruin his or her reputation…
E & O isn't cheap, but neither is going to court! E & O policies vary in price and your premium will depend upon your level of experience, the size of your business, and your professional record. As is always the case with insurance, it's a matter of risk and reward. Ask yourself: Could I afford to hire an attorney to fight frivolous charges? Could I continue to run my business while battling a litigant in court?
The Fine Print When It Comes to E & O Insurance
E & O is available to businesses of any size. As a solopreneur you are potentially more vulnerable than a large company to the financial complications that can result from litigation; a single court case can easily bankrupt a freelancer, not to mention ruin his or her reputation.
And if you can't afford a competent attorney, than your actual guilt or innocence may be beside the point: we all want to believe that the truth will win out, but in court, the better lawyer often prevails regardless of the facts.
If you're business has recently expanded to include employees other than yourself, then make sure that your current E & O insurance covers your new hires. You may also need to purchase an extension package if your business works with subcontractors.
Another important proviso: E & O will not protect you from criminal litigation. If your company is sued in criminal court, then you will be responsible for providing your own counsel.
Depending on your policy, your E & O insurance may not include defamation, breach of contract, or intellectual property theft, but you should be able to buy extensions to provide indemnity against any civil liability. As always, you need to make sure that you've explored every last nook and cranny of a contract before you sign with an insurer.
Do you work in insurance, or understand the value of carrying different types of business insurance? Why not submit a guest post today, for The Self-Employed Blog?