Professional Liability Insurance, (commonly called Errors and Omissions [E&O] coverage in the agency business) is designed for people who represent themselves to the public as possessing special skills in their profession. The exposure covered by errors and omissions insurance “provides for the payment on behalf of the insured of all sums that the insured becomes legally obligated to pay as damages because of injury arising out of errors or mistakes on the part of the agency, or of a person for whose acts or omissions the insured is legally responsible in conducting his or her profession.” (Don’t you love legalese?)
This means if your agency makes an error in client work that causes the client harm, and the client subsequently sues you for damages and wins, you have insurance to cover the payment. What it does not mean is that you are reimbursed by insurance to redo work where you have committed an error. The policy only pays for your obligations arising out of a damage suit.
Errors and omissions insurance is expensive. Whether you need it or not is a decision only you can make. There was a time when clients were reluctant to sue their advertising agency over an error, so few smaller agencies bought the coverage. To a certain extent they were exposing their firms to potential harm, but if they operated in a smaller city where a suit brought by a client against an agency would have caused some bad feelings in the business community, that exposure was slim.
It’s a different business climate today; relationships are less local and less intimate, so you can’t count on a sense of community to protect you from lawsuits. Also, some clients now ask that their agencies have E&O coverage before they will even consider a relationship. Your job as a manager is to weigh all the expense decisions for your agency, and the demands of clients and prospects, to determine whether you need E&O coverage.
Without client requirements, the key to making this decision lies in the fact that you have to be sued for this policy to pay. Yes, we make errors, but what is the likelihood we will be sued over those errors? Weigh the odds—would you rather expose your agency to this calculated risk rather than pay the thousands of dollars it costs to buy the coverage? Or are you more comfortable having the protection?
Life is a series of risks. We each weigh risks differently. Take your own measure and decide whether E&O is an affordable need or something you’re willing to do without.
If you need professional liability coverage, Second Wind has an arrangement with Collector’s Risk, a Chicago-based insurance carrier. Contact Greg Brown at 1-800-414-2929 for details and mention Second Wind, or call Second Wind at 610-374-9093 to learn more.
