Benefits - E&O policies provide a number of important benefits. When an insured is dealing with a claim, the insurer will conduct an investigation regarding the allegations to validate their merit. Should the case go to court, the E&O policy will cover the insured's legal defense expenses, which could result in thousands of dollars. In the event the insured is discovered liable or agrees to a deal out of court, the insurer pays the award amount up to the policy's coverage limit. By not having E&O insurance, small business owners are responsible for paying damages and court expenses out of pocket. This can be quite costly, leading some companies to face bankruptcy.
Commercial Liability Plans – A number of commercial liability insurance policies offer coverage that is superficially like E&O coverage. However, unlike E&O policies, commercial liability plans do not provide protection for acts of personal negligence.
Considerations - Professionals like doctors, lawyers, financial advisers, school administrators, caterers and accountants should think about acquiring the right amount of E&O coverage to protect their business and personal assets. The amount of coverage should correlate with the industry averages for the insured's type of business. Otherwise, the policy owner may be looking at damages that surpass the policy's coverage limit.
Run-Off Protection - Companies can still find themselves liable for errors and omissions years following their existence. Although liability does not expire, the majority of insurance policies, including E&O, do not cover claims unless they are in effect; and businesses typically cancel these policies once they shut down. However, E&O policy holders can acquire "run-off" coverage, which protects business owners against liability in the years after the business closes.
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