What is E&O Insurance?
Errors and omissions insurance (E&O) is a type of professional liability insurance that protects companies and their workers or individuals against claims made by clients for inadequate work or negligent actions. Errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract.
E&O Insurance Coverages
Insurance brokers/dealers, registered investment advisors, financial planners and other financial professionals can obtain E&O insurance. Regulatory bodies, such as the Financial Industry Regulatory Authority (FINRA), or company investors often require E&O insurance. The benefits an E&O insurance policy gives companies or individuals can vary greatly depending on the policy and issuing insurance company. E&O insurance may or may not cover temporary employees, claims stemming from work done before the policy was in force or claims in various jurisdictions.
In the financial industry, lawsuits happen, regardless of how baseless the claims may be. Clients sometimes sue an advisor or broker after an investment goes sour, even if the risks were well-known and within the guidelines established by the client. In these cases, even if a court or arbitration panel finds in favor of a broker or investment advisor, the legal fees can be very high, and E&O insurance is vital in these situations. A person or company that has had numerous litigation problems has a higher underwriting risk and is likely to find E&O insurance more expensive or less favorable in its terms as a result.
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