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The ABCs of E&O insurance

In a series of ongoing posts, our blog discussed how important it is for prospective business owners to consider the degree to which they need to insulate themselves from financial loss and how valuable a commercial general liability insurance policy can be in this regard.

As true as this is, it's important for budding entrepreneurs and firmly-entrenched enterprises alike to know that they may require more than just a commercial general liability insurance policy in their insurance portfolio. Indeed, they may require what is known as Errors and Omissions Insurance -- otherwise known as E&O insurance.

In general, E&O insurance is designed to cover defense costs, settlements and judgments stemming from claims made by clients that you, the business owner, either failed to provide a service, or provided a service that failed to produce the anticipated or promised results.

For people like dentists, physicians, chiropractors and other medical professionals, E&O insurance often goes by the name malpractice insurance, while for people like engineers, architects, accountants and attorneys, it often goes by the name professional liability insurance.

No matter what name it goes by, E&O insurance can be essential for all businesses from web startups to wedding planners.

As to questions surrounding the need for this coverage, businesses must consider just how costly a legal action brought by a disgruntled client, patient or customer can prove to be. For example, even those claims that are entirely lacking in merit will still need to be adequately addressed, creating legal costs that could quickly add up to unsustainable levels.  

It's important to understand, however, that while paying premiums for an E&O policy can provide much-needed peace of mind, this doesn't necessarily mean that the insurance companies will always live up to their end of the bargain. Indeed, when an insurance company decides to deny or delay payment under such a policy, assets can quickly be drained, professional licenses jeopardized and doors to businesses closed.

Those business owners who find themselves in this unenviable and unfortunate position should know that they have options. A skilled legal professional can seek to resolve these sorts of coverage disputes efficiently and effectively, even exploring whether punitive damages should be pursued in light of the bad faith evidenced by the insurance company.

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