What’s the Difference Between D&O, E&O, and EPLI Insurance?
Business professionals have many responsibilities. You want to provide outstanding service to your clients while minimizing the risk to your company. Even when you take extensive precautions, problems can occur, leading to a customer lawsuit.
Getting sued might be a conventional part of doing business, but it doesn’t have to lead to financial difficulty for your company. Professional liability insurance provides financial protection in the event of a lawsuit. Having the right type and amount of liability insurance coverage can keep your business afloat in the event of a lawsuit. Learn more about the different types of liability coverage and see which options will provide the most protection.
What Is Errors and Omissions Insurance?
Errors and omissions insurance (E&O) is another name for professional liability insurance. E&O insurance aims to protect professionals if a client feels that they made an error when providing services. E&O insurance can cover lawsuits that occur due to these reasons.
- Bad advice: Many clients rely on professionals, such as attorneys and consultants, to give them valid, usable and beneficial advice. If a professional provides advice to a client and things don’t meet the client’s expectations, they might sue. For example, if a consultant recommends a factory member make changes to increase efficiency and those slow down production, a client might bring a lawsuit. If an attorney advises a client to sever ties with someone and doing so leads to more difficulties, the client can sue.
- Negligence: Negligence occurs when a professional doesn’t provide the usual level of care. For example, if a doctor doesn’t look at a patient’s chart before prescribing a medication the patient is allergic to, a judge can find them negligent. If an investment adviser ignores all warnings about a company’s financial health and recommends stocks that ultimately tank, they can be negligent.
- Slander or libel: If a professional says unfavorable or contradictory things about their client out loud, they commit slander. Negative or false written comments constitute libel. In either case, a client can sue the professional for personal injury.
- Omissions: An omission is the failure to mention information that could change a client’s view on a matter. For example, a real estate agent who doesn’t explain a house sits on a flood plain or had previous extensive damage is committing an omission.
- Mistakes: Even the best and most talented professionals make mistakes occasionally. If a client suffers harm due to an error made by an attorney, doctor, accountant or other professional, they might choose to sue.
The coverage an E&O insurance policy provides depends in large part on the policy itself. Many policies pay for legal fees, administrative fees and court costs due to liability lawsuits. Policies also often cover the cost of damages or settlement. Whether a policy provides coverage depends on when the rules apply and when the incident occurred. Some E&O policies only cover incidents that happened when the policy was active and that are still current when the client sues.
What Is Directors and Officers Insurance?
Directors and officers insurance (D&O) is a form of E&O or professional liability insurance. It specifically provides coverage to the directors, officers, executives and other higher-ups at a company. D&O insurance protects the personal assets of the people who manage or oversee a company.
There are several reasons someone might sue a director or officer of a company personally.
- Poor financial management: Directors and officers often have financial sway over a business. If an investor believes a director’s decision adversely affected a company’s financial health, the investor could personally sue the director.
- Negligence: Investors, clients or vendors can also sue directors or officers for negligence. For example, if the board fails to meet or carry out its duties, particularly in a crisis for the company, a client or investor could sue.
- Errors: A lawsuit can come about due to errors directors or officers make. For example, the board might make claims about the company’s service that turn out not to be true.
- Wrongful acts: A director or officer can commit a wrongful act by mixing their private finances with those of the company or having a conflict of interest that affects their ability to provide service to the business.
It’s crucial to note that D&O insurance usually doesn’t protect a company if the directors or officers commit crimes or illegal acts. Another common misconception about D&O insurance is that it’s only for large, publicly traded companies. In reality, any business with a board of directors, including small, private companies and nonprofit organizations, can benefit from a D&O insurance policy.
What Is Employment Practices Liability Insurance?
While E&O and D&O insurance provide liability protection for incidents that affect people outside of a company, such as dissatisfied clients or investors, employment practices liability insurance (EPLI) protects a company from claims filed by people who work within it. An employee can sue a company if they believe the company has violated their legal rights.
Some of the reasons a person might sue their employer include:
- Sexual or other forms of harassment
- Discrimination
- Wrongful termination
- Failure to promote or hire
EPLI might be part of a general liability insurance policy or be an add-on to a business owner’s policy. The amount of coverage it provides depends on the company’s size, practices and employee turnover rate. A business with high employee turnover is likely to pay higher premiums, as there is more risk of getting sued by new hires than by most established employees.
Which Type of Policy Do You Need?
Your business most likely needs some form of liability protection, whether it’s a general E&O policy, D&O, or EPLI. Perhaps your company could benefit from all three types of coverage. As you shop for liability insurance, keep in mind your company’s size, the risks it carries and who you employ.
Find the Professional Liability Insurance You Need With XINSURANCE
At XINSURANCE, our specialty is helping businesses that can’t get insured elsewhere get the coverage they need. Whether your company needs professional liability insurance, D&O coverage, or a combination, we can help. We can also review your existing policies and advise you on expanding your coverage to more fully meet your insurance needs. Contact us today to learn more.
Authored by Rick J. Lindsey, President, Chairman, and CEO of XINSURANCE
Rick J. Lindsey hails from Salt Lake City, Utah. He began working in the mailroom of his father’s Salt Lake City insurance firm, getting his introduction to the business that became his lifelong career. Rick J. Lindsey quickly rose through the ranks while working in nearly every imaginable insurance industry job. As an entrepreneur, specialty lines underwriter, claims specialist, risk manager, and a licensed surplus lines broker, Rick J. Lindsey is highly skilled in all levels of leadership and execution. As he progressed on his career path, Rick J. Lindsey discovered an urgent need for insurers willing to write policies for high-risk individuals and businesses. He was frequently frustrated that he could not provide the liability protection these entities desperately needed to safeguard their assets. He also formed the belief that insurance companies acted too quickly to settle frivolous claims. Rick J. Lindsey decided to try a different approach. He started an insurance company and became the newly formed entity’s CEO. This opportunity has enabled Rick J. Lindsey to fill a void in the market and provide a valuable service to businesses, individuals, and insurance agents who write high-risk business. XINSURANCE also specializes in helping individuals and businesses who live a lifestyle or participate in activities that make them difficult for traditional carriers to insure. If you’ve been denied, non-renewed, or canceled coverage, don’t give up quite yet. Chances are XINSURANCE can help.
