Consultants are often on the front lines when it comes to being named in a lawsuit by disgruntled clients. This is because one of their primary functions is providing advice or making suggestions that clients are inclined to follow out of trust. They believe that the purpose of a consultant is to always have their best interests in mind.
Purchasing errors and omissions (E&O) coverage from OC insurance helps protect consultants, or advisors, from paying the cost of defending lawsuits brought on by clients alleging that they were given bad advice. Litigation of this type can greatly affect E&O insurance costs for consultants and can have a negative effect on their reputations as well.
Understanding the policy language
There is no standard professional liability, or E&O policy for consultants, simply because each insurer offers their own specific coverage. In order to determine if the policy offered would provide the needed protection requires a detailed analysis of the contract. It’s important to know what is specifically excluded from the coverage and if you, as the insured, have the right to refuse a settlement offer in a claim. It would also be prudent on your part to determine if the policy pays on behalf of the insured or does it indemnify the policyholder.
Professional liability insurance is designed to protect consultants from allegations of a “wrongful act,” which is defined by most policies as an act, error, omission, misstatement, misleading statement or neglect or breach of duty. Professional liability insurance offers protection from allegations that the job was either not performed properly, or was not done well enough to satisfy the client’s needs.
Defense costs can be extremely high
Fortunately, professional liability insurance pays for the cost to defend a suit in addition to paying the amount awarded following litigation. Typically, errors and omissions policies pay defense costs within policy limits. This policy protects the insured on a “claims made basis” meaning that the policy pays for lawsuits enacted during the policy period.
Legal actions can actually be brought years after an actual event occurs, therefore allowing coverage to expire can have a major negative impact, jeopardizing your protections, which could further lead to much higher OC insurance costs. Speak to an agent about your questions and concerns regarding the policy features.