If you own a small business or professional practice, three cheers for you! You are the engine that drives the job growth in our country. According to the U.S. Chamber of Commerce, you generated 64 percent of the net new jobs over the past 15 years, despite epic economic downturns, oppressive government regulations at every level and a burdensome federal tax code. You soldier on and hope for the best. Unfortunately, when the economy is struggling and unemployment rates are high, you bear the brunt of tort liability -- lawsuits. A study commissioned by the U.S. Chamber Institute for Legal Reform and NERA Economic Consulting found the following:
- In 2008, the cost of tort liability to American small businesses was a whopping $105.4 billion
- Small businesses paid 81% of business tort liability costs but took only 22% of revenue
- Small businesses paid $35.6 billion of their tort costs out of pocket -- they didn’t have insurance 
Times haven’t gotten a whole lot better since this report was published in 2010, and people are more eager than ever to sue businesses and professional practices for errors and omissions. Those suits drive up the cost of goods and services, force employers to make tough decisions about hiring, firing and employee benefits, constrain growth and consume time that could otherwise be spent more productively. Errors and Omissions insurance (also known as E&O, Professional Liability Insurance or PLI) is like the malpractice coverage doctors and lawyers carry, but it’s designed for professions such as architects, real estate agents, accountants, ad agencies and other professional service providers. It can help take the sting out lawsuits, and these days, it’s an essential element of a sound business plan. Yet a surprising number of small businesses and professional practitioners don’t have it.
Consider that you can be sued for something as innocuous as a typo, miscommunication or a client who simply decides you provided bad advice. Whether the claim is valid or not, you’re going to spend many hours and many dollars refuting it. If you have Errors and Omission insurance, your policy will foot the bill for lawyers’ fees, court fees, expert witness costs, administrative and discovery expenses, court judgments and settlements.
The Do’s and Don’ts of an E&O Suit
If you have an E&O policy or Professional Liability Insurance , how you respond to the threat or service of an E&O suit are critical. The wrong action can make matters worse, according to InsuranceJournal.com:
- Don’t overreact or get angry. Call your insurance agent and let him or her handle the situation.
- Do not make any additions, revisions or deletions to any files or correspondence relating to this client. Doing so implies you have something to hide.
- Don’t talk to anybody except your PLI insurance rep, your defense attorney and other members of your defense team. Anything you say to anybody else can be used against you in court.
- Never admit guilt or wrongdoing. Basically, just clam up and let your defense team handle it.
- Don’t give a written or recorded statement to anyone unless your insurance claims rep or attorney is present. Your statements are legally admissible evidence; your team advisors will make sure you don’t put your foot in your mouth.
- Don’t let anyone other than your team read, copy or remove the plaintiff’s files and records unless your claims rep authorizes it.
- Do notify your E&O insurer of any claim ASAP. That can be a verbal threat, a letter or an actual notice of suit.
- Do assemble and organize all files and records related to the claim.
- While it’s fresh in your mind, write down everything you can that relates to the claim, including names, dates, times, places, etc. Ask anyone else involved to do the same.
- Do cooperate with all requests from your E&O team in a timely manner. They’re on your side, make it easy for them to help you. Not doing so may violate some condition or requirement of your policy and jeopardize you coverage.
- Do let your E&O carrier and legal team manage the claim. They know what they’re doing and they have your best interests (and theirs) at heart. 
What’s the Outcome?
There are basically four outcomes to any E&O lawsuit, two good, two not so good:
- It can be dismissed or dropped. This is typically what happens if the court finds the suit to be totally frivolous.
- The court can find in your favor. Good news.
- It can be settled without a trial. Your team and the plaintiff’s team reach an agreement out of court. Your E&O policy will cover this to the limits of your policy.
- The court can find for the plaintiff. Your E&O policy will cover this to the limits of your policy.
In any of those scenarios, having an PLI or E&O policy in place will save you time, money and frustration. You can learn more and shop for quotes for PLI specific to your profession here.
 “Tort Liability Costs for Small Business,” U.S. Chamber Institute for Legal Reform, July 2010