What is typically excluded from an E&O policy?
Understanding Errors and Omissions Insurance Exclusions: What’s Typically Not Covered?
Errors and Omissions (E&O) insurance is essential for protecting professionals and businesses against claims of negligence, errors, or incomplete work. However, like all insurance policies, E&O coverage has limitations and exclusions that are important to understand. Below, we explore what is typically excluded from an E&O policy and why additional coverage might be necessary.
1. Intentional or Criminal Acts
E&O insurance does not cover claims arising from intentional, fraudulent, or illegal acts. If a professional is found guilty of deliberately misrepresenting information, engaging in fraud, or committing illegal activities, the policy will not provide coverage. This exclusion ensures that insurance is used for genuine mistakes, not intentional wrongdoing.
2. Bodily Injury and Property Damage
While E&O policies protect against professional mistakes, they usually exclude claims involving bodily injury or physical property damage. For example, if a consultant’s negligence indirectly causes a physical injury, this type of claim is typically covered under a general liability policy, not E&O insurance.
3. Employment Practices
Claims related to employment practices, such as wrongful termination, harassment, or workplace discrimination, are excluded from E&O policies. Businesses should consider purchasing Employment Practices Liability Insurance (EPLI) to cover these risks.
4. Cybersecurity Incidents
Data breaches, cyberattacks, and other technology-related risks are usually not covered under an E&O policy. For businesses handling sensitive client information, cyber liability insurance is necessary to mitigate these risks.
5. Contractual Liability
E&O insurance excludes liabilities assumed through a contract unless the liability would exist even in the absence of the contract. For example, if a business agrees to overly broad terms in a client agreement, any resulting claims may not be covered.
6. Fines, Penalties, and Punitive Damages
Many E&O policies exclude coverage for fines or penalties imposed by regulatory bodies, as well as punitive or exemplary damages awarded in lawsuits. Businesses should understand these limitations, especially if operating in highly regulated industries.
7. Claims Outside the Policy Period
E&O insurance typically operates on a “claims-made” basis, meaning coverage only applies to claims reported during the active policy period. Claims stemming from incidents before the policy’s start date or after its expiration are excluded unless tail coverage is purchased.
How to Address Coverage Gaps
To ensure comprehensive protection, businesses should:
- Review Their Policies: Understand all exclusions and limitations in your E&O policy.
- Add Supplemental Coverage: Consider policies like general liability, EPLI, or cyber liability to cover excluded risks.
- Work With a Knowledgeable Agent: A trusted insurance agent can help tailor a coverage package that minimizes gaps.
E&O insurance is a vital safety net for professionals, but it doesn’t cover everything. By understanding common exclusions—such as intentional acts, bodily injuries, and contractual liabilities—businesses can better prepare for potential risks. Pairing E&O insurance with complementary policies ensures robust protection, giving professionals peace of mind to focus on their work.
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