Why Service Providers Need Errors and Omissions Insurance

Small business errors and ommissions insurance

Imagine you’re a small tech startup. Maybe you’re trying to carve out a business providing IT solutions to individuals or small companies. Then one bright Rocky Mountain morning you find the FBI at your door with search warrants and they’re coming in to grab some hardware. Like it or not.

That’s probably not far from the real story of Platte River Networks, the small Denver-based firm that took possession of Hillary Clinton’s email server. Do you think the folks at Platte River Networks are going to need some expensive legal representation?

Without a doubt.

I know nothing about the management of this small firm, or its politics, or how much money it has behind it. The point is that small businesses can find themselves in situations that suddenly require them to hire expensive attorneys, even if they have done nothing wrong.

Small business insurance

We’ve discussed insurance for small businesses and freelancers before on these pages. And I’ve cautioned you to not rely on your homeowner’s insurance if you’re running your small business out of your house. However, that discussion didn’t venture into some areas of liability.

Going back to the email server farm for a moment: What if it is discovered that the company didn’t take the standard industry-recognized measures to secure data on its servers? In a case like that the company would essentially be guilty of malpractice, just like a doctor who doesn’t handle a patient case properly.

E&O insurance for small businesses

If you provide a service to someone, you need to consider errors and omissions (E&O) insurance. Imagine you’re a wedding planner and you really mess up the bride’s big day. Who will you turn to when you get a call from Bridezilla’s attorney first thing Monday morning?

Or if you write code for clients and something goes wrong causing your client a financial loss, you’ll probably be asked to make up for the loss…and then some. Unfortunately, in the US when bad things happen – even when they are unintentional – lawyers almost always get involved, and it’s costly.

Small business marketing edge

There is an “up side” to this discussion. Having insurance in place helps establish your professional credibility. When you’re in discussions with prospective clients, be sure to mention the fact that you are insured. That might prompt them to ask the next interviewee if he or she has insurance. If that person is uninsured, you get a distinct advantage.

No one wants to go on a cross-country road trip with an uninsured driver, right?

E&O policies are somewhat less standard than fire insurance or personal injury coverage, but a good local small business insurance agent should be able to help you find the level of coverage that is appropriate to your small business.