In the business of marketing consulting, some days the old saying, “what can go wrong, will go wrong,” holds true. While most engagements go according to plan, those that don’t can result in a disappointed client – or worse, a lawsuit.
To protect against the high cost of a legal defense or judgment, many marketing consultants and agencies buy errors & omissions (E&O) coverage. If you’re like many others in your field, you’ve heard about this type of insurance but may not understand exactly what it is, what it covers, and how it’s different from other kinds of consultant business insurance.
TechInsurance.com’s team of E&O insurance agents has compiled the following list of frequently asked questions and answers to explain E&O insurance and help you decide whether it’s right for you or your marketing agency.
Are professional liability insurance and errors & omissions insurance the same thing?
Yes, the terms “errors and omissions insurance," “E&O insurance” and “professional liability insurance” are often used interchangeably. This type of insurance protects your business in the event that a client claims that it suffered a financial loss due to an error or oversight you make in the course of delivering your professional services. In such cases, your insurance policy would pay for your legal defense, as well as any legitimate financial compensation for your client, plus specific other costs outlined in the policy.
What about “general liability insurance” – is that another name for professional liability coverage too?
No, general liability insurance is a completely different kind of insurance that covers you for claims of bodily injury or property damage, either at your business location or your client’s. These types of policies cover costs if a client is injured while visiting your office, or if one of your employees accidentally damages property or hurts someone while on a client’s job site.
It’s very common for client companies to ask their marketing consultants to sign a contract stating that they carry both professional liability and general liability coverage. Requiring their contractors and other service providers to carry their own general liability insurance reduces the odds that the client’s own insurance will have to carry any costs in the event of an accident, while requiring professional liability insurance reassures the client that financial compensation will be available if a project should go awry.
As long as you’re purchasing general liability coverage, it’s often wise to buy that coverage in conjunction with property insurance coverage for a slightly higher premium. Such specially priced, combined coverage is called a Business Owner’s Policy, or BOP, and is a cost-effective way to protect your business against many different types of exposures or claims. The added property coverage would, for example, pay for the loss if your laptop is stolen or a fire destroys your office and everything inside it. Your property is covered whether it’s at your own place of business or your client’s.
Does general liability insurance include errors & omissions coverage?
No. General liability generally excludes legal disputes that involve allegations of professional negligence or failure to perform professional duties. If you should be sued because your client believes you’ve made a mistake on the job, general liability won’t cover you. For complete protection, your marketing firm needs separate professional liability coverage.
What typically is covered by errors & omissions insurance?
E&O insurance is designed to be used when a client alleges that you were negligent or made a mistake in the course of your work, causing a financial loss for your client. For a marketing consultant or market research professional, this might include allegations of:
- Libel or slander of a client's rival, or a rival marketing strategy company
- Inaccurate marketing survey results
- Inaccurate test results that lead to a monetary or business loss for the client
- Results obtained in surveys or product testing that lead your client to manufacture a hazardous product
- Data misinterpreted by employees
- Unethical information-gathering by employees
- Delayed product or campaign launch that affect your client's sales or production projections
- Faulty execution in printing, interactive coding or advertising that resulted in errors
When such cases are covered, professional liability coverage would pay for your legal defense, plus any court-ordered financial compensation for your client. If you choose to try to correct the problem yourself, your insurance won’t pay for any time or additional costs you incur.
It’s a good idea to talk to your agent or broker to clarify exactly what’s covered by your errors and omissions policy, or more importantly, what’s not. For some uninsurable risks, you may need a contract with your client that outlines both your rights and how specific conflicts can be resolved should they arise.
I’ve been in this business for years and have never come close to a lawsuit. Do I really need errors & omissions coverage?
The good news is that your risk of being sued is low. So why do so many marketing consultants and small business owners still buy professional liability insurance? Because no matter how good a job you do, there’s always the risk that a client will find something to be unhappy about.
Some clients may have unrealistic expectations or simply prove to be difficult to work with. And of course, you can’t control every aspect of every project. There are often elements beyond your control that can derail a campaign or cause a delay. If you’re the client’s primary marketing consultant, you’re the one who will be held accountable.
If your professional relationship goes bad and communication breaks down, there’s not much you can do to prevent your client from seeking legal recourse. Even if the lawsuit has no merit, you’ll probably waste a lot of time and money fighting it in court. E&O insurance can give you peace of mind from knowing that if a client makes a claim, you won’t have to worry about how you’ll keep your business afloat as you work to prove your case.
How much does professional liability insurance cost?
The premium for an errors and omissions insurance policy is determined based on several factors, including the limits of liability and deductible you choose for your marketing consulting company, as well as your company’s location and revenues. However, it’s safe to say that most one- or two-person marketing firms will spend about $1,000 a year for $1 million in E&O insurance. For many marketing consultants, it comes out to less than 1 percent of gross revenue – a lot of value for a small price.
If you’re still curious about E&O insurance, of if you’re interested in other types of consultant business insurance, there’s no cost to contact a small business insurance broker for quotes. A qualified E&O insurance agent or broker can help you determine what type of insurance is best for your contract requirements and your firm.