The Need for E&O Coverage is Rising

professional lines / errors & omissions

June 7, 2021 1 minute read

Christal Fleishman

Posted by Christal Fleishman

There's an industry that is silently becoming a behemoth of business, consulting. It's likely you're connected to a few types of consultants. In the U.S., Management Consulting alone accounts for $2.46 billion.

There are several types of consultants. Examples include firms specializing in energy, event planning, forestry, marketing, statistics, business, transportation, urban planning, video production, and compliance, among others. 

Why should a retail insurance agent care about this class of business? Business owners typically consider Commercial General Liability when insuring their business; however, this coverage provides only part of what a consultant will need to ensure they're protected from losses. Errors & Omissions (Professional Liability) coverage then becomes the second layer of support. 

E&O generally covers a consultant's work that is late, unsatisfactory, or even incomplete. Essentially paying out for losses due to sub-standard work by the insured's firm. The claim by the claimant would be negligence which caused the claimant financial harm.

Example: A well-known snack brand is launching a new product. The product is ready to be distributed but the snack brand is waiting for the packaging design from their marketing firm. The marketing firm misses their clients' (snack brand) design deadline thereby missing the product launch date. The snack brand then loses revenue from the unsold products while they await the design from their marketing firm. Or worse, they have to hire another firm to design the packaging. 

In the example above, the snack brand incurred a loss of revenue and could file a claim against their marketing firm. Their marketing firm would be protected by their firm's E&O policy and the revenue loss would be paid out to the snack brand. 

This is one small example of the wide array of claim examples brought on by consultants. As a retail agent, you can provide vital protection for your insureds by encouraging the addition of an E&O policy when their business completes any consulting or advisory roles. Click here for a list of risks that would benefit from E&O coverage.

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