Nothing could possibly be worse than receiving claims from a client for compensation due to negligent action or inadequate work on your part. Humans are prone to committing errors. However, clients could levy claims against such errors and omissions, no matter how innocent they appear. Insurance firms offer errors and omissions insurance to cover such erroneous acts to accountants and other types of professionals. As well, accountant insurance is available to accounting practitioners for shielding them against the costly repercussions of government-instigated audits. That said a number of crucial points are important to know about errors and omissions insurance.
Errors and Omissions Insurance Definition
Errors and Omissions is a form of insurance which offers coverage to an individual or company against a client who holds them responsible for poor service. It could in certain cases, be merely because of failure to meet the expected standards of service-delivery. This insurance policy targets covering loss suffered by the service-provider under such circumstances.
All kinds of professions may need errors and omissions insurance. It is known as malpractice insurance in relation to the services provided by chiropractors, dentists or doctors. For engineers, lawyers, architects or accountants, it is called professional liability. Accounting professionals and their clients can also obtain accountant insurance for protection against costs associated with tax audits required by the authorities. While the name used may vary, errors and omissions insurance offers common coverage to all of these professionals. A majority of policies in relation to this insurance cover judgments, costs of defense as well as settlements.
The Need for Errors and Omissions Insurance
No one can claim to be perfect when practicing a given profession. It is incontestable that mistakes can occur with even the best employees as well as best practices at work. Even for a negotiable issue, an aggrieved client could prefer filing a lawsuit against you. You could in such case end up spending multiple thousands of dollars defending the lawsuit, whether or not the allegations made appear legitimate. Allegations like these have the potential of making you bankrupt and put your practicing license at risk of being revoked.
It is therefore commendable that an accountant acquires accountant insurance for instance to mitigate unforeseen risks in accounting. Wedding planners, marketing managers, doctors, economists, freight forwarders and other professionals equally require considering obtaining suitable omissions insurance policies. Your professional reputation can be gravely affected by filed litigations and lawsuits. Litigations also have a cost implication. This means that companies and individuals involved in providing services to clients at a fee are exposed to committing errors and omissions.
Policies and Costs of Errors and Omissions Insurance
Errors and Omissions policies vary across different professions and no single standard policy is available for this type of coverage. Policies require being read with care because their meanings differ with each profession.
Errors and Omissions Insurance policy gets written on a form designated as ‘claim-made’ or alternatively ‘claim made and reported.’ The ‘claim made’ form is meant to ensure that claims are in fact made. The ‘claim made and reported’ version ensures that claims are made and reported in particular within the policy period prescribed.
Insurance policy costs vary greatly relative to the type of business, location as well as claim’s experience (individual insured and industry of applicable business).
Apart from errors and omission insurance, accounting practitioners would be prudent to consider acquiring accountant insurance against government-instigated audit activity.