Insurance is not limited to limited to life and health only. Every day, professionals are exposed to various kinds of risks for which they require special covers. A doctor, for instance, faces the risk of a financial liability due to an error while rendering professional services. Similarly, a lawyer has to face the financial brunt if the client suffers financial setback after working on his advice.
There are various professions which involve a high degree of risks and, thus, lead to a big liability if something untoward happens.
People act on recommendations of professionals and hence, if a professional makes a mistake, the person he has advised will also be impacted. There is a high possibility of a lawsuit in which case the income of the professional may not be sufficient to pay the legal compensation decided by the court.
This is a situation when the errors & omissions (E&O) policy comes into effect. Also, called professional indemnity insurance, it indemnifies the professional against various compensation claims arising out of breach of duty by negligence, act of error or omissions while discharging professional duties. In the case of a claim filed against the policyholder, the insurer steps in and makes good that loss and also covers defence costs.
What does the policy cover?
The errors & omissions insurance plan helps in covering losses to policyholders because of negligence or omission caused during the discharge of duties. The plan can be purchased by any person or entity whom can be held responsible for the services they provide.
As a service provider, you get paid for your services you give. It means, someone who is availing your services have all rights to question you in case you fail to give them the promised benefits and you can also be dragged to the court. But if you have a professional indemnity insurance policy, the insurer pays for the amount of claim that may arise in case you lose the case filed against you. The policy comes into force even if there is a mere allegation. However, it doesn’t cover any deliberate act of omission or negligence.
A glance over the benefits of a professional indemnity insurance:
- Comprehensive coverage against various types of risks and losses
- Coverage for legal expenses
- Hassle-free documentation
- Option to increase or decrease the sum insured as per the need
- Customised policy
How does it work?
The E&O policy comes into the picture as soon as the allegation is levied on the policyholder. To understand its working and benefits, let’s have a look at the following case study:
VikasJha took his ailing wife Neerja to a nearby hospital after she suffered a cardiac arrest. The on-duty doctor, Ramesh Saran immediately admitted her and started the treatment without wasting a minute. In order to save the patient’s life, Ramesh gave an injection to the patient without checking her past medical history. However, the patient was allergic to certain medicines, due to which she got the second heart attack, and within a few minutes, she died.
Vikas filed a case against the doctor Ramesh for medical negligence. Though Ramesh did his best to save the patient’s life, he was held guilty of medical negligence and was asked to pay Rs 50 lakhs. As Ramesh was covered under the E&O policy; the insurer paid the entire compensation amount. Besides, the claim amount, the insurer also paid the legal costs incurred in battling the case in the court.
Who can buy the errors & omissions insurance policy?
The following should buy the policy:
- Consulting firms
- IT Companies
- Doctor’s,Lawyers& Architects
- Services Firms
The structure of the policy
You choose a sum insured on the basis of the nature and quantum of work. For instance, for specialists, like cosmetic surgeons and neurosurgeons, the premium amount could be higher. Similarly, an architect who designs houses has a lower risk profile and lower premium rates than the one works on dams.
In most of the cases, the sum insured of Rs 1 crore has become the base cover. The sum insured limit is fixed per accident and per policy term, which is also called ‘Any One Accident’ (AOA) and ‘Any one Year’ (AOY) limit. You can choose the ratio of AOA limit to AOY from the below:
The AOA limit is the maximum amount that needs to be paid for each accident, and therefore, it should be decided carefully after taking the factors into consideration:
- Professional Experience
- Extension required
- Limits opted by the policyholder
- Claim experience
When should you buy the professional indemnity insurance?
Like with any insurance policy, the best time to buy the professional indemnity insurance is before there is a risk. If you are the part of the service industry and you know you will have the exposure to losses, make the errors & omissions the part of your insurance portfolio. Also, if you have many contacts with clients, you will require insurance to be in place. It gives complete peace to clients as they know that they will be compensated in case of any error or omission.
Exclusions of the policy
Like any other policy, there are some events which are not covered under the E&O policy, like:
ü Criminal act, fines or penalties
ü Dishonest, fraudulent, or malicious act
ü Conditions associated with AIDS
ü Use of drugs for cosmetic plastic surgery, weight reduction, hair transplants, etc.
From where can you buy the Errors and Omissions Insurance?
A few years ago, there was a dearth of insurance companies offering the errors and omissions insurance policy in India. However, in recent years, the scenario has completely changed. There are many insurance companies which are offering the policy for both individuals and corporates, like law firm, hospitals, etc.
As the policy offers legal liability coverage, it is necessary to buy it prudently. Either you can buy it directly from the insurer or approach insurance brokers like SecureNow, to purchase it. These brokers carefully analyse your requirements and suggest an apt policy accordingly. Not only it is a time-saving method, but it also gives a hassle-free experience.
Though the customer awareness has increased in the country, the number of claims on professionals for breach of duty has also witnessed a rise. Therefore, it makes complete sense to go for the E&O or professional indemnity insurance, irrespective of the business sector you belong to.