Is it E&O, D&O or all of the above?
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Woe unto he who tempts the litigiousness of these times. I offer here a first-hand tale of warning.
Some time ago the ceo of a real-estate investment company, with whom I had developed friendly rapport, inquired about buying insurance against claims of negligence, malfeasance, misallocation, fraud, bad employment practice, so on and so forth.
Because I am generally familiar with his company (but hardly enough to safely make assumptions of this magnitude) I assumed that a “Directors & Officers” policy would suffice. Had I been careful and professional enough to suggest that an “Errors and Omissions” policy might also be advisable, then urged him to seek help from a lawyer, he would not have considered suing me for $15 million, ending our friendship and turning my life into an unending fit of angst.
Well, ok, that’s a lie. He has never considered suing me, he didn’t end our friendship or boil me in angst, but you were reveling in my misery, weren’t you? And that led you this far into a subject that is deadly dull to most folks, until a most dreaded package of papers arrives from Dewey, Sueum and How, P.A., informing you that the coming days of your life shall be filled with calls to and from lawyers defending against a claim of monetary damages resulting from your horrid, evil, dishonest, double-dealing and slightly stupid ways.
That’s when you will wish you had really listened to that insurance guy’s rant. Read on because peace of mind is priceless.
My ceo friend has not considered suing me. Our friendship remains in tact and, I’m happy to say, my life is no more filled with angst than usual because I almost immediately caught myself in a mistake.
He did indeed ask about insurance and I did assume that D&O would suffice. That was yesterday. Today I emailed him, urging him to speak to a lawyer because: a.) I don’t know every aspect of his business; b.) I’m not familiar with the activities and professional backgrounds of all the members of his organization; c.) without that knowledge it’s impossible to know which type(s) of insurance he really needs; and d.) he should tell me what he needs after speaking to a lawyer and we’ll go from there.
First and foremost, he is wise to be thinking about the potential for someone to sue him and his company. He is a good and honest fellow, as far as I know, but that doesn’t matter. Good and honest fellows get sued daily by lying, conniving creeps who are out for an easy buck or a pound of flesh. And these good and honest fellows still have to hire and pay lawyers to fend off bogus claims. That’s where the insurance comes in handy because it pays to defend you, regardless of the merit of the claim. Yours would not be the first good business crippled by specious litigation.
If you own or manage a company, and employ at least one person (that being you, compadre) you probably should consider buying insurance known as “Errors & Omissions (E&O)” or “Directors & Officers (D&O).” In fact, you might even need both.
Generally speaking, E&O insurance covers licensed professionals in the conduct of their professions. It’s often thought of as “malpractice insurance,” but it goes beyond the medical and legal professions. Among others, real estate agents commonly carry it, so do architects, financial advisors, and insurance agents.
D&O covers the directors and officers of an organization relative to actions and decisions they take on behalf of their organizations. For example, you might find a retired handyman, who serves as the president of a homeowners association, covered by D&O insurance.
They are very different types of policies for different purposes, yet motivated by roughly equivalent concern over exposure to potential litigation.
I could go on to explain why you might need one or both of these policies but that would be at least another 600 words and it’s late Friday afternoon with a bevy of calls left to make.
If you require further illustration of why this type of insurance might be worth the premium, I refer you to the top several paragraphs of this post. Sometimes even good and honest fellows do make mistakes that result in damages to someone else. When they do, they are always glad they bought the policy. Beyond that, contact me or your insurance agent for more information.
