Directors & Officers Liability Insurance Vs. Errors & Omissions Liability Insurance

No matter the type or size of your business, it is important to have adequate insurance coverage to protect you from liability. For protection from claims of malpractice or improperly performed services, you need errors and omission liability insurance. But this type of policy won’t cover you for every eventuality. To fill in the gaps, you may also need a directors and officers liability insurance policy.

What Is Errors & Omissions Liability Insurance?

Errors & omissions (E&O) insurance, also known as professional liability insurance, is designed to protect your business from claims that you:

• Failed to provide professional services.
• Provided services in a way that caused financial damages or some type of harm to the client.

E&O insurance provides protection for any representative of your business, and the business itself, while directors and officers (D&O) insurance is primarily designed to protect the directors and officers of the company. While D&O insurance covers mainly decisions made by management, E&O coverage generally applies to individuals who provide services directly to clients of the company. Types of claims covered by errors and omissions liability insurance include:

• Malpractice
• Negligence
• Design flaws
• Financial damage

Why Do You Need E&O Insurance?

If you are a business owner, you may need errors and omissions liability insurance if you like to sleep at night. It protects you in case a disgruntled client or a third party thinks your business has something wrong (even if it hasn’t) and decides to sue you. It will cover your legal fees to fight the case in court. If it turns out your company did make a mistake, it will cover any damages for which you are liable.

What Is Directors & Officers Liability Insurance?

Also known as management liability insurance, D&O insurance is designed to protect the executive management team of a company from allegations concerning their management decisions. It applies to decision-makers of a business and protects them from personal liability in the event of a claim. Types of claims covered by directors and officers liability insurance may include:

• Unfair business practices
• Negligent acts
• Employment practices
• Conflicts of interest
• Mismanagement of funds
• Investment decisions
• Release of non-public information

When Do You Need D&O Insurance?

Directors and officers liability insurance can help protect the personal assets of the directors and officers of your company, as well as their spouses. This coverage kicks in when directors and/or officers are personally sued for alleged or actual wrongful acts in managing a company. It may apply to suits filed by:

• Investors
• Employees
• Competitors
• Vendors
• Customers
• Other parties

D&O insurance usually protects the company as well. It covers legal fees, settlements, and other costs in the event of a lawsuit. It provides the financial backing for the standard indemnification provision holding officers and directors harmless for losses due to the role they play in the company.

Depending on your business, you may need the protection of both errors and omissions liability insurance and directors and officers liability insurance. Our experienced agent can review your coverage needs with you and help get you the best available quote.