Errors and Omissions Insurance ("E & O") is one of the most important policies that financial institutions and advisers should obtain. E & O protects the business organization, its officers, directors, and employees in the event a client asserts a claim as a result of any mistake or failure to act on the part of the firm or adviser. Errors insurance covers various faults, including but not limited to inaccuracies, miscalculations, oversights, trade errors and legal fees. Omissions coverage pertains to any non-fraudulent failure to act by the firm or individual.

Contrarily, general liability insurance is not the same as E & O. General liability insurance does not cover lawsuits resulting from investment mistakes or failures to act. E & O coverage also should not be confused with Directors and Officers Insurance ("D & O"). D & O only covers the firm directors and officers from potential lawsuits brought forth by stockholders, employees, clients and other parties for which the directors and officers are responsible.

Examples of How E&O May Provide Protection:

• Unauthorized Trades
• Misappropriation
• Trade Errors
• Breach of Fiduciary Duty
• Breach of Contract
• Failure to Supervise
• Misuse of Authority
• Material Inaccuracies
• Inadequate Research
• Solicitation Discrepancies

It is important to note that E & O insurance will cover all of the above mentioned examples so long as the error or omission does not involve a fraudulent violation of industry rules and regulations.

How E & O Coverage Works

E & O has various levels of coverage ranging typically from $500,000 to $2,000,000+ depending on your business model. Similarly, the retention and cost of E & O coverage varies. E & O providers take into consideration a multitude of factors including, but not limited to, the level of risk your business will assume, number of employees with professional designations and assets under management in discretionary and non-discretionary accounts.

E & O is an important safeguard for your business. While there are other forms of insurance that also should be considered dependent upon your business model, E & O insurance has a place in every securities business.

This article is for information purposes and does not contain or convey legal advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.

Michelle L. Jacko, Esq. is CEO of Core Compliance & Legal Services, Inc. and is Of Counsel with Shustak & Partners, PC. She works extensively with client firms on compliance issues. For more information about this topic and other legal services, please contact her at (619) 278-0020, michelle.jacko@corecls.com or visit http://www.corecls.com

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