For IT contractors and owners of small technology businesses, Errors & Omissions Insurance (aka Professional Liability) is one of the most important insurance coverages to carry. Why? For two reasons: first, many of your clients have an incomplete understanding of the IT work you do. This can lead to miscommunications, which can lead to frustration with your work and ultimately a lawsuit.
Second, laws regulating the IT industry can't keep pace with IT innovation, meaning that there isn't precedent for many of the E&O claims that make their way to court. In order to give your business a fair shot at winning, you need to have excellent legal representation, which is difficult to afford without the legal expense coverage provided by an Errors and Omissions policy. (Read more about why E&O is more important for IT business owners than others.)
But having an E&O policy in place is only part of the battle. The other part is making sure you handle claims properly so that you receive the coverage you deserve.
"Claims-Made" E&O Vs. "Claims Made and Reported" E&O
Most E and O policies offer coverage on a claims-made basis, which means they offer compensation only if the policy is in force both when the work in question was completed and when the claim was submitted. But there are actually two different types of claims-made policies:
- Pure claims-made: These policies offer coverage for claims reported "promptly" to an insurance provider, but usually don't specify what constitutes "prompt" reporting.
- Claims made and reported: These policies only offer coverage when a claim is submitted and reported within the same coverage period. Translation: if you receive a claim from a client in 2013, but don't report it to your insurer until 2014, after your policy renews, your claim might be denied.
Considering how much an E&O claim can cost you without insurance, that's pretty scary. Read on for three essential tips to help ensure you get coverage for all your E&O claims.
3 Tips for Receiving E & O Insurance Payouts Every Time
To smooth the claims process and maximize your odds of receiving E & O benefits in a timely manner, follow these steps.
- Understand what constitutes a claim. Here's something that comes as a surprise to many IT business owners (and what causes some to have their claims denied): a claim doesn't have to be a lawsuit. In fact, many Errors & Omissions policies define a claim as any oral or written notification of an event that might lead to a lawsuit. That means you need to notify your insurance provider as soon as a client mentions that they're dissatisfied with your work, especially if they mention suffering a financial loss or contemplating legal action.
- Report claims quickly. Many E&O policies only offer coverage if you report the claim in the same policy period that it was filed. Here's what that means. Imagine that, at the end of 2013, your client emails you insisting you breached contract by missing a deadline. Your policy runs 2012 - 2013, and you've renewed it for another year. The client then brings a lawsuit against you in early 2014. When you submit the claim to your insurance provider, it might not cover you unless you already notified it about the initial email. Why? Because some E&O policies actually work on a "claims made and reported" basis, meaning that coverage is only available to those who report claims immediately (i.e., within the same coverage period as they were introduced). (This Insurance Journal article explains this phenomenon in more detail.)
- Update your policy as needed. Many insurance providers adjust their products (i.e., insurance policies) from year to year. Whenever you renew or update your policy, be sure to consult with your insurance agent about any relevant changes (for example, if your policy switched from claims-made to claims made and reported). Doing so will help you avoid missing out on benefits if and when you submit a claim.
Still have questions about how your Errors and Omissions Insurance works? Talk to a TechInsurance agent to make sure your business is covered, or .
Writtten by Brenna Lemieux - check her out at Google+ or Twitter