How to Limit a Corporation's Liability With Errors and Omissions Insurance

Errors and omissions (E&O) insurance can protect your corporation's liability if you make an error and the client take you to court. E&O insurance can also protect your company if you can't perform your required duties to a contract's specifications. Recommended for individuals and firms who provide advice or represent the needs of others, this insurance can cover legal costs. Here's how to obtain it.

Things You'll Need

• Phone
• Computer with Internet access

Instructions

1. Locate an E&O insurance provider through the National Association of Professional Insurance Agents (see Resources below). Some agents will only write policies for companies that have been licensed and in business for 1 full year, so make sure the agent knows if you're just starting out.

2. Speak with several agents to find one who specializes in your field. The best way to limit your corporation's liability is with an airtight policy crafted by a provider who knows where you are vulnerable.

3. Fill out an application provided by a potential insurance provider. You should describe your corporation's products and services in detail to give the agent an idea of how best to limit your exposure and structure your policy.

4. Submit the documents required to file for E&O insurance to your agent. You will likely need to supply copies of your business license, company balance sheets, tax returns and the terms of any other insurance policies you carry.

5. Keep your policy active to avoid lapses in coverage. If you don't file a reactivation application for your E&O insurance when the initial term expires, you will receive a warning letter. Most insurance providers will then give you 30 days to reactivate your insurance without a lapse in coverage.

6. Consider increasing your existing policy coverage to limit liability. The minimum amount for coverage is usually around $5,000, but coverage limits can go as high as several million dollars.

Tips & Warnings

• In addition to corporations, errors and omissions insurance can protect real estate agents, investment advisers, health care professionals, accountants, architects and lawyers.

• Specialized agents are available for fields such as technology, real estate, teaching and home inspections.

• Your commercial general liability insurance doesn't cover most professional liability issues, errors or disagreements regarding contract performance.

• Without E&O insurance, you could lose revenue and suffer damages as a result of your actions. You may also be fully responsible for legal fees and judgments in any lawsuits that arise.

• Technology firms such as software developers and Web designers should be extra careful when selecting an E&O policy. Have your corporate attorney review the policy prior to purchase to verify that the proper exclusions and professional responsibilities have been covered.