Errors & Omissions Insurance: How It Relates to Your Contracting Business
Protecting your contracting business against financial liability is vital to your ability to succeed. As a business owner, you’ll need to carry a variety of insurance types to protect yourself, your employees and your financial interests. Errors and Omissions insurance is a policy that provides you with support in the event that you have to pay for problems that occur as a result of your work. It’s not the same as your general liability insurance, so you want to make sure that you understand the difference. Here are a few tips you can use.
What Is the Difference Between General Liability and E&O Insurance?
There are essentially two types of liability in your business: general and professional. General liability relates to the risk that you face throughout your normal work processes. Professional liability considers the financial effects of the work you do, as well as things you don’t do. If a client gets injured at your place of business, or if you build something that eventually breaks due to faulty construction, it typically ties to your general liability. Errors and omissions is another way of referring to professional liability. E&O insurance helps to protect you if someone claims that they had financial losses as a result of the work you did for them.
You may need to keep both kinds of policies for the work you do. In order to secure certain projects, you could be required to show a certain level of coverage in each area. When you get quotes from insurance agents, they sometimes offer both types in what is commonly called a “business owner’s policy.”
Can I Face Liability Outside of the Project?
In some cases, you can be held liable for issues related to your work years after the job is complete. In fact, every aspect of your business dealings could come to a lawsuit after the fact. This is why you need to consider coverage that relates to all types of business you provide. If you act as a consultant on other projects that you do not actually complete, you can be held liable for the advice and instruction that you provide. That kind of claim against you would typically fall under your E&O coverage.
Do I Need Professional Liability Insurance?
Providing these kinds of services doesn’t mean you will get sued all the time. You might wonder why you need certain types of insurance. In truth, some businesses don’t. However, the nature of a contracting business in the field of construction dictates:
- meeting at client sites
- creating a plan for future work
- doing jobs on other people’s properties
- participating in the building of structures others will use
If any of these actions cause a financial loss to others, you could be held liable under your own professional liability. Insurance isn’t a guarantee that you will never have to pay. It’s just one shield against having to pay all of it from your business assets.
How Could E&O Insurance Protect My Business?
As a general rule, this type of liability insurance will provide you with financial support. It can help pay for damages awarded to individuals or businesses who file suit against you for certain errors and omissions. Before you buy it, make sure you understand the limits. Some policies don’t cover your legal fees to deal with a suit against you. Others have requirements that you have the policy active at the time of the work and at the time of the claim. Ask your insurance agent if they have specific experience setting policies for contractors. E&O insurance relates to all kinds of industries, but the coverage needs can vary hugely depending on the type of work you do.
Getting the right kind of insurance for your contracting business helps you feel more secure and protect your bottom line. To learn more about how you can start your own business in construction, contact us at CSLS today!
