Mistakes happen. It’s true in every facet of life, and that includes business. Unfortunately, any professional can be sued or held liable for mistakes made in the course of conducting business. In our highly litigious society, errors and omissions insurance is a good idea for many types of businesses. But in the collections industry, this coverage represents a vital layer of protection.
Errors and omissions insurance – also called professional liability – protects professionals from defense costs and damages stemming from lawsuits related to their services. Most credit grantors will require a collector to carry a certain amount of errors and omissions coverage before contracting to do business with the agency.
An errors and omissions policy is written on a base professional liability form, with a series of policy endorsements that mold the coverage to fit your business. It is important to pay attention to the endorsements, which may enhance or restrict your coverage.
Lawsuits can be extremely costly to defend and settle. The language in the Fair Debt Collection Practices Act (FDCPA) can be interpreted very loosely, and collection agents can be sued for a wide range of activities including a letter or a phone call to a consumer. A seemingly benign phone conversation can be construed into “harassment” or “misrepresentation,” and even frivolous claims cost money to defend.
General liability is another type of specialty insurance carried by many businesses, but it is important to note that general liability does not cover lawsuits related to professional services. Instead, general liability policies cover bodily injury and property damage caused by the insured. Only errors and omissions policies protect against FDCPA claims and other similar allegations.
Errors and omissions rates can be expensive in the collection industry due to the high frequency of claims. As with any purchase, it is important to shop the market to make sure you are getting the best rates and coverage for your business.