Apology Accepted

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."

This article was originally published in the February 2007 print edition of Entrepreneur with the headline: Apology Accepted .