Why can't some businesses purchase errors and omissions insurance?
There are many reasons why an insured might be denied coverage or be ineligible for a particular type of insurance. An insured might have a bad claims history, have acted fraudulently, or the business might be too risky for your typical insurance company to comfortably insure (for related reading, see A Look at Uninsurable Risk). This is especially true with more complex commercial risks.
With errors and omissions (also known as professional liability insurance or E&O insurance) specifically, the more likely reason is that the business is simply not a candidate for it.
E&O insurance is meant to protect professionals against claims of negligence or for failing to perform their professional duties (such as failing to meet contractual obligations). It should not, however, be confused with general liability coverage. General liability coverage provides protection for everyday liability issues like bodily injury or property damage. If you are looking for that type of coverage, you should not be looking at E&O insurance.
To be eligible for E&O, you must be considered a "professional" in the insurance context. In general, there are two types of professionals we deal with: healthcare providers and advice/counselling professionals. To clarify, advice/counselling professionals are people like lawyers, engineers, architects or insurance brokers – essentially anyone whose clients rely on for accurate and ethical advice. Healthcare providers would need to buy medical malpractice insurance and advice professionals would buy an E&O policy.
E&O insurance is a very specific type of liability insurance and most businesses should probably be buying other types of liability insurance that would suit their needs better (learn about the 4 Essential Types of Liability Insurance Every Business Should Have).
Written by Jacques Wong
Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.
In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.
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