What is the difference between E&O and general liability insurance?
The distinction between errors and omissions (E&O) and general liability insurance is crucial to understanding the comprehensive protection businesses and professionals need. While both types of insurance protect against third-party claims, they cover fundamentally different risks.
General liability insurance protects a business from claims resulting from bodily injury or property damage caused to third parties. For example, general liability insurance will kick in if a client slips and is injured on the business premises or an employee accidentally damages a client's property while performing their job. This insurance also covers personal injuries such as libel or slander. It is essential for almost every business, regardless of its nature.
In contrast, E&O insurance focuses on financial losses resulting from errors or omissions in providing professional services. It comes into play when a client suffers a financial loss due to incorrect advice, poorly performed service or professional negligence. For example, if a management consultant gives advice that results in an economic loss for their client, or if an architect makes a mistake in their plans that leads to additional costs for the building owner, E&O insurance will step in.
The main difference is the nature of the damages covered: general liability insurance mainly covers physical damages (bodily injury and property damage), while E&O insurance covers financial or economic damages.
It is important to note that general liability insurance usually explicitly excludes claims related to professional services. This is why E&O insurance is so crucial for service businesses and professionals. It fills a significant coverage gap, protecting against risks that could leave a company vulnerable to potentially ruinous lawsuits.
Additionally, while general liability insurance is mainly standardized, E&O insurance can be highly customized to the specific needs of each profession or industry. For example, a lawyer's E&O risks differ significantly from an IT consultant's, and their policies will reflect these differences.
In practice, many businesses need both types of insurance to be fully protected. General liability insurance provides broad, essential protection, while E&O insurance provides specialized coverage for the specific risks associated with providing professional services.
By understanding these differences, professionals and businesses can ensure comprehensive protection against the full range of risks they face in their businesses.
