If you’re weighing the pros and cons of buying errors and omissions insurance vs. directors and officers insurance vs. employment practices liability insurance, you’re probably wondering: Are these policies actually different? They are—and you might need all three. Keep reading to learn what these policies cover and who needs them.
Errors and omissions (E&O) insurance, also known as professional liability insurance, protects companies that sell professional services from client lawsuits. For example, if an architecture firm misses a deadline for blueprints and the client sues, E&O insurance would help cover legal expenses like court costs, settlements, and judgments.
E&O insurance also covers lawsuits related to:
- Breach of contract
- Failure to deliver work
- Work mistakes
- Unsound advice
Because general liability policies only cover lawsuits related to property damage, bodily injury, and reputational harm, E&O policies fill in a critical coverage gap.
Any company that sells professional services to clients needs an E&O policy, including:
- Insurance agents
- Law firms
- Real estate agents
Directors and officers (D&O) liability insurance protects key individuals at your company from financial loss if they get sued for work-related mistakes.
Let’s say an executive misrepresents a company’s assets and revenue when securing money from investors. The investor could sue the executive by name if the company fails to uphold its investment agreement, putting the executive’s personal assets at risk. The company’s D&O policy would either reimburse the executive if the company refuses to pay or reimburse the company for lawsuit costs if they go to court on their employee’s behalf. Some policies protect the company and its employees if both get named in a suit.
In addition to misrepresentation, a director or officer could get sued for:
- Failure to comply with employment laws
- Breach of fiduciary duty
- Misuse of funds
- Intellectual property theft
- Customer or employee poaching
Any business with directors and officers can benefit from D&O coverage, including:
- Public companies
- Private companies, from small businesses to large corporations
- Nonprofit organizations
You never know when a key employee will get named in a suit, even if you’re a small business owner.
Employment practices liability insurance (EPLI) covers lawsuit costs when an employee or former employee sues their employer for alleged breaches of employment law. These employment-related claims can include:
- Wrongful termination
- Sexual harassment
- Failure to promote
- Employment contract breach
EPLI coverage often comes with your D&O policy, but you can also purchase a standalone policy.
Any business with more than one employee should consider EPLI coverage. Employment lawsuits are more common than many businesses think, and your company can get sued even if you follow all employment laws.
D&O and E&O policies sound similar in name, and they protect against the same thing: work-related lawsuits. However, they differ based on who and what they cover. D&O policies provide coverage to named individuals (and sometimes their company), whereas E&O policies protect the entire company, including any employee who provides professional services.
Generally, E&O vs. D&O claims don’t have much overlap. E&O policies cover client lawsuits related to a company’s services. Lawsuits covered under a D&O policy might come from investors, competitors, or former employees, and they typically relate to management decisions.
E&O and D&O policies generally cover claims originating from outside your business, whereas EPLI covers lawsuits from within. An E&O policy wouldn’t cover employee lawsuits because they aren’t related to your professional services. However, D&O policies will cover employment-related lawsuits directed at a specific individual.
So, what’s the difference between D&O and EPLI coverage? Aside from the fact that D&O covers much more than employment claims, it doesn’t cover employment lawsuits against a company. If an employee sues your business entity instead of a specified individual, you would need EPLI coverage to pay for lawsuit costs.
No matter what type of business you own, you probably need some combination of E&O, D&O, and EPLI coverage. If you’re looking for an experienced agency to help you find the right coverage in Chicago or beyond, get in touch with Southpoint today. We specialize in niche professional liability coverages, including information technology E&O and dental malpractice insurance.
We can help you determine which coverages you need and gather quotes from the most reputable carriers. We’re committed to getting the best coverage for the lowest price, which is why clients around the country choose us as their professional liability partner.
Schedule a meeting with our team to learn more about E&O vs. D&O vs. EPLI coverage or request a quote today.