If your business enters into a contract with a partner, you must do your due diligence to understand and follow every agreement and clause. If an issue arises in the future, and a partner shoulders most of the blame, they could still decide to sue you claiming your company made a critical error (or omission) before the release date. This creates the potential for financial devastation and should lead you to invest in protection for errors and omissions claims. In fact, some business partnerships even require it.
Common E&O Claims
Before entering into any merger or partnership arrangement, consider these common errors and omissions (E&O) claims.
Breach of Contract
If you fail to perform any responsibilities under the terms of a written or verbal contract, perceived or not, you could easily have a breach of contract allegation on your hands.
If a client or partner suffers financial loss from a breach of contract, they could sue to recover damages, no matter how minor the situation may seem to you.
It is critically important that those involved are happy with the contract and understand mistakes could be made prior to signing it. Mistakes and misunderstandings do happen, which is when you can turn to your errors and omissions coverage to avoid hefty fees from defense costs and settlements.
Acts of negligence occur when you’re accused of poor communication or failing to take reasonable care or control in a project. Be careful not to assume that a business partner knows everything you know. It is always beneficial to provide plenty of information from the start and maintain regular communication throughout partnership with the correct documentation to avoid getting sued for not keeping them properly informed.
It is in your best interest to maintain excellent communication and managerial practices, uphold consistent documentation of conversations, a record of employee performance, a history of transactions, and implement project monitoring and company operation reviews. Keep in mind it is possible to have all of this and conduct business in the most professional manner, and still be hit with a claim.
If you fail to disclose a piece of information that results in financial or reputational loss for a partner, they could sue you for intentional misrepresentation, or the fraudulent misrepresentation of a third-party for financial or personal gain. An all too common claim is from overstating expertise and capabilities to secure a client.
Even if you did not intentionally mislead a third-party, you could still be sued if the plaintiff convinces the court that your actions were intentional. This is a prime example of a scenario in which errors and omissions insurance will come to your aid.
If your business provides any software that malfunctions or fails, causing financial damage to a client, you can be held liable for damages. For example, if a billing software company and the software malfunctions and doesn’t calculate overtime pay for hundreds of employees, resulting in underpayment, the client could then incur additional costs to fix the problem and get updated payments to their employees. In a case like this, the client is likely to sue for software failure to cover the losses.
About Transparity Insurance Services
Transparity Insurance Services was founded for the purpose of helping clients to ensure their property and assets with no hassle. We are committed to providing a simple, easy, efficient, and positive experience to all of our clients, and prioritize open and transparent communication with our clients. Through our excellent customer service and technology, we can help you to find the right insurance program at a competitive price. Contact us today at (855) 889-2037 to learn more about what we can do for you.