Apology Accepted

E&O insurance can help make up for mistakes.
This story first appeared in the February 2007 issue of Entrepreneur. To receive the magazine, click here to subscribe.

Often, business mistakes can be handled with a sincere "I'm sorry" and perhaps an adjustment on the invoice. But what if you're a professional service provider and your mistake caused your client serious economic loss? To protect yourself from the cost of litigation and damages, you need errors and omissions (E&O) coverage.

"E&O, also called professional liability insurance, covers professionals for unintentional errors or omissions they make in the rendering of their professional services," says Mark S. Wolf, assistant vice president of E&O operations with Independent Insurance Agents and Brokers of America in Alexandria, Virginia. The coverage pays both defense costs and damage awards.

Don't confuse E&O with general liability. E&O coverage is typically provided through a stand-alone policy tailored to your particular service and risks. "The premiums are driven by your profession and [location]," Wolf says. For example, a financial advisor in California will pay a higher premium than a graphic artist in Iowa.

Your insurance agent can help you analyze your potential liabilities and determine how much coverage you need. Wolf recommends asking for a variety of quotes and then buying what you can afford. Rendering professional services without E&O insurance is very risky, Wolf says: "Whether you actually make a mistake or not, you can still be sued."

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