The Ins and Outs of Buying General Liability and Errors & Omissions Insurance

It’s extremely important for all business owners to fully understand the differences between general liability insurance and errors and omissions insurance. Too often risk managers and business owners have a misguided interpretation of these two different types of insurance that causes them financial loss with a claim. To clear up all the confusion surrounding these two types of insurance, here is an in-depth explanation of general liability insurance and errors and omissions insurance and the differences between the two.

General Liability (A Primer)

There are two primary types of coverages in a GL policy and those are property damage and bodily injury deriving from your operations or products. Some common GL claims include incidents like when someone gets hurt because they tripped over your equipment or when your product malfunctions and causes a fire or flood resulting in property damage.

Also remember that while technology based companies are required to have GL insurance, the policy does not cover all types of liability risks. In fact there are many risks that are not covered by general liability insurance including:

–          Financial Loss: Staying within the theme of intangible property damage, a GL policy does not cover you if you are found responsible for a third party’s financial loss or drop in business. If one of your services or products interfered with business and causes a company to lose money, your GL policy will not cover you.

–          Intangible property damage: In today’s technologically advance world, a lot of your personal property such as computer data and records are not tangible. GL policies do not generally cover intangible property so if your company caused the loss of data or damage to computer records, your GL policy would not provide you with coverage.

–           Impaired Property: In most GL policies there is an exclusion that states that if the only problem with the tangible property is your defective product, the claim is not covered. In other words, if an item is rendered useless simply because of your product’s inability to work properly, then that is not considered property damage and is not covered by GL.

–          Professional Services: Most GL policies exclude professional liability. This means that you may not be covered for any property damage or bodily injury that is a result of your services or technology products like software. While it seems unnecessary to have this type of coverage considering your services and technology products are way more likely to cause financial damage rather than physical, it is still important to ensure that you have no gaps in coverage.

–          Recall of the Product: GL also does not cover the costs associated with recalling a defective product. However this kind of coverage can be added by purchasing a product recall property or through endorsement.

–          Advertising and Personal Injury: While not many people know about this type of coverage, it is an extremely important coverage option for those in the technology business. Although the coverage is sometimes different depending on the insurance company, in general it deals with:

o   Severe allegations such as malicious prosecutions, wrongful termination, and false arrest.

o   Intellectual property infringement usually resulting from a firm’s advertising activities

o   Protecting firms from lawsuits accusing them of causing personal injuries such as slander, libel, invasion of privacy, and defamation.

–          The type of business that you’re in is very important in determining which type of coverage you need. GL policies typically have an exclusion for personal and advertising injury coverage for traditional media companies. This because insurance companies assume that these firms need full media liability protection. Since technology companies are using more and more types of media these days, the exclusion has been modified to also include internet service providers, search engines and, web site designers.

It is important to note that exclusions can vary from one insurance company to another. So it is imperative that you make yourself aware of the details of your general liability policy to insure that you are getting all the coverage that you need.

Technology Errors and Omissions (Professional Liability) – A Primer

Every technology company should have a technology E&O policy. However, because many business owners don’t fully understand the coverage, many companies don’t purchase E&O or only do when it is required by a contract. Because many people fail to understand technology E&O, there is no standard insurance form. For this reason we urge all business owners to work closely with an agent and an insurance carrier so that they can evaluate your risks and recommend the best coverage for your specific business.

What does E&O Cover?

For the most part, E&O policies cover liability claims pertaining to financial loss resulting from a third party’s use of the products or services from your technology company. It also covers damages to a third party resulting from the damage, loss, or corruption of intangible property like data. Lastly, Technology E&O covers the loss of usefulness of a tangible property that is not at all physically damaged by your product or services.

What exposures does E&O not cover?

In general, E&O policies do not cover property damage, bodily injury, or personal and advertising injury. This is because most insurance companies assume that these risks are covered by the general liability policy. However, in the circumstances where your GL policy does not cover these risks, you can purchase the coverage by endorsement or through specialty insurance. This however, is not the best course of action because E&O coverage is written on a claims-made basis. E&O policies are also subject or a retention or deductible and has defense costs that reduce the liability limits. In addition, E&O policies only apply to covered damages resulting from your technology services and products. A general liability policy differs because it will normally cover damages resulting from all services, operations, and products.

The main objective of E&O coverage is to work together with your general liability policy to create a gapless and effective coverage that will adequately protect you from all the potential disasters you could face.

So what exactly are the differences between E&O and GL?

Claims: A general liability policy can apply to claims many years after the policy expires. As the long as the alleged injury happened during the policy period, the GL policy will still apply. However, and E&O policy is generally sold only on a claims-made basis. In other words, the coverage only applies to claims that were made during the policy term for actions committed on or after the retroactive date of the policy and before the policy expires. A retroactive date, otherwise known as the prior acts date usually refers to the date the claim-made coverage was originally purchased. This date is typically used as a tool to allow claims wrongful acts committed before the actual policy period began to still have coverage.

Deductible/Retention: A deductible or retention is a specific amount that your company is responsible for per claim. This is before the insurer covers the claim and losses costs. Typically an E&O policy has a deductible or retention and a GL policy does not.

Defense Costs: With an Errors and Omissions policy, the limit of liability for a claim is reduced by defense costs. This includes expenses that the insurer pays in efforts to defend your company against a claim, regardless of the outcome. With a general liability policy, the defense costs do not affect the limit of liability. Typically, defense costs with a GL policy are given in addition to the limit of liability until the limit has been exceeded by payment of a claim.

Other Professional Liability Exposures to be Aware of:

While the most common professional liability risks include financial loss resulting from the defectiveness of products or services, there are many other types of professional liability exposure that you may face as a technology business. Some examples of these are:

–          Activities on your company web-site may bring on extra liability risks

–          Due to the fact that many technology products are made to keep information secure and private, you may run the risk of being invasion of privacy allegation.

–          As a programmer or software developer, you are also at risk of intellectual property claims. These types of claims include allegations like trademark infringement and copyright.

It is also important to know that these exposures are not usually covered by technology E&O policies but you may add them to your coverage through endorsements.

Keep Your Policies with the Same Company

It is always a good idea to purchase your GL and E&O from the same insurance company. Having both policies with the same carrier helps prevent gaps in coverage to ensure that you have all the coverage you need. In addition, when your policies are with different carriers, there can be coverage disputes between the carriers when a claim deals with both policies, using only one coverage solves this problem.

For more information on general liability and errors and omissions policies and their differences, contact us at Kirkwood Insurance.