Staffing Insurance: What You Need to Know Now!
Article 5 in a Series
What is Errors and Omissions Liability and Why Do I Need It?

You are a professional making professional decisions and sometimes, professional mistakes. You also manage an in-house staff, and you may have temporary employees at a client's worksite.

Errors and Omissions insurance (E&O) provides your company with financial protection when a lawsuit alleges that a mistake has been made by you, your in-house staff, or your temporary employee at a client's office. This insurance protection is essential because human error can result in a real or alleged financial loss by your client. Even if the charges are groundless, your defense costs could have a disastrous effect on your bottom line.

1. What are some typical losses seen on an E&O Policy?

•   Temporary employee makes a mistake that causes a financial loss to the client.
• Misrepresentation by the personnel agency of the qualifications of an applicant.
• Failure of the personnel agency to check the applicants references from previous employers, or “alleged” failure to run a criminal background check.

2. What are some actual claim examples that an E&O Policy covered?

• A temporary employee working in an accounts payable department failed to pay an invoice on time, resulting in $58,000 in fines and penalties.
• An applicant was placed in a temp-to-hire secretarial position at a church. Sometime after becoming a full time employee of the church, she began embezzling money. The crime was discovered three years later, at which point the loss was approximately $460,000. The church filed an E&O lawsuit against the staffing firm “alleging” that a requested background check had not been conducted. The four-year old records at the staffing firm did not clearly indicate that a background check had been requested and none was conducted.
• A “contract” employee was hired to provide programming support on a six month software project. The employee constantly missed work and deadlines, and eventually disappeared from the position completely. The missed deadlines allegedly resulted in the entire project falling behind schedule and the client sued for wages and damages.
• A personnel agency filled a position for a mid-level sales manager. After one year on the job, the client company fired the manager and sued the personnel agency because the client company's sales declined. They alleged that the sales manager was a poor performer and wasn't properly screened. The claim was negotiated and settled for over $70,000.

All of the above examples are actual claims experienced by successful and well managed staffing firms. In two of the cases, employees at the staffing firm made mistakes or cut corners. In the other two cases, the staffing firm did everything they promised, but because of the size of the loss, they were sued anyway.

3. Are there different types of E&O policies?

  Yes, absolutely. Quite often we encounter staffing firms with E&O policies that would never defend or pay a claim for them. Some policies being sold to staffing firms actually have specific exclusions for “temporary help.”

E&O coverage can be provided on either a “claims made” or “occurrence” basis. Claims-made coverage only protects you if a written claim is made during the policy period. This means that if an incident occurs during the policy period, but no claim is made until after the policy expires, the claim will not be covered by the carrier. (An extended reporting period can be added to the policy, but at an extra cost to you).

When E&O coverage is provided on an occurrence basis, you are covered for losses that occur during the policy period, no matter when the claim is made. For obvious reasons, the occurrence policy is the one preferred by insured.

4. Summary

E&O claims can be very expensive and you can be sued by a client, even if you did everything you committed to do for them. Mistakes can happen due to human errors or miscommunication, and the result can be devastating to your bottom line. Policies with coverage written specifically for staffing are readily available in the marketplace. Interestingly, E&O insurance policies that exclude coverage for temporary employees are oftentimes more expensive than the high quality products written just for staffing.

Not sure if you're covered properly? Please contact us and ask us and we'll be happy to review the policies you have in place right now.

Questions: please feel free to email me at Richs@ctkins.com and I'll be happy to answer your questions.

Next month: Cyberspace Liability and your obligation to protect private information.

1240 North Lakeview Avenue, #240, Anaheim, California 92807 P 714.779.2000 F 714.779.4129