Facing an E&O insurance claim is a lot like an IRS audit. It’s something you really want to avoid. It’s time-consuming, unsettling and uncomfortable. In today’s litigious business environment, it’s a great time to review some of the most effective ways to reducing your E&O risk as well as provide a strong defense in the event a claim is made against you:
Have E&O insurance coverage. For many types of business professionals, having errors and omissions (also called professional liability) insurance is critical. In today’s world, you can be the subject of a financially devastating legal claim at any time.
Keep information about each client in a separate file. Include and summarize ALL interactions with each client via phone, e-mail, text and in person. Include any interaction with claims adjusters and underwriters that relates to that customer.
Summarize EVERY client conversation and meeting, including phone calls. Include the day and time of the interaction, the name of the client and what was discussed. Don’t skip logging a call because you think it is trivial. Every interaction could be important in court proceedings.
Make sure you’re documenting the advice you provide. When a client asks you for advice, include information in their file about what they asked you, what guidance you provided them and what action was taken as a result. If a client elected to discontinue or not take coverage that you recommended to them, make sure that’s documented. It’s estimated that 50% of all E&O claims stem from instances in which a client lacks coverage in the event of a loss.
Keep up with your record keeping. Contemporaneously prepared documentation is best. Documentation should be as thorough as possible given time and resource constraints. Contemporaneous notes are considered especially credible evidence of conversations in the event of a legal claim. You can put information together months or years later, but it won’t be as accurate or credible.
Use your words carefully. Respond to your client as if your conversation is being recorded. Be precise in every text, e-mail, letter, in-person visit or phone call. Many policies do not cover coronavirus-related losses. Don’t say to a client, ‘I thought that would have been covered’.
Use follow up letters/e-mails. If the conversation is an extremely important one, such as when a client declines recommended coverage, you may want to provide a summary of what was discussed in a follow-up letter to your client. Documentation, when consistently created, will not guarantee that a claim will be settled in your favor. It will, however, give you the best defense possible.