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Professional Liability vs. Errors & Omissions Insurance: What's the Difference?

23. April 2015 08:07

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If you've just started to dip your toes into the insurance waters, you may find that learning the lingo is like trying to swim in the deep end when you're hardly comfortable with dog paddling. (Don't worry – there's a glossary for that!) To complicate an already complicated matter, some insurance policies have multiple names.

Such is the case with Professional Liability Insurance, also known as Errors and Omissions Insurance. It's not like one is the secret superhero and the other holds down a desk job. Rather, these names are interchangeable and used to describe the same policy that just so happens to have a reputation for saving the day.

So what does the policy do? And why bother with both names? Let's get to the bottom of these questions.

Professional Liability and E&O Insurance: Coverage for Service-Related Quandaries

Businesses that provide professional services (e.g., consulting, troubleshooting, or installation) often want an E&O policy because those services come with special liabilities. Namely, you can be sued over:

If these professional mistakes result in a financial loss for your client, they can try to recoup expenses by filing a lawsuit against your business. That's where Professional Liability / Errors & Omissions Insurance comes in. This policy may help cover

The kicker? You don't actually have to do anything wrong to be sued. The quality of your service is subjective, and you may simply have a difficult client on your hands who wouldn't be satisfied even if you wrangled down the moon for them. If they decide to exercise their discontent through the legal system, you'd be up the creek without a paddle if you don't have E&O Insurance.

The good news is that E&O / Professional Liability Insurance may offer coverage for your legal expenses even if the lawsuit is frivolous. A meritless suit may waste your time, but it doesn't have to drain your resources, too. Read more about that here: "Why Winning an E&O Lawsuit Still Costs Money."

For more on what Professional Liability / E&O costs, check out our new Professional Liability Insurance cost report.

E&O, Professional Liability, or Malpractice: What's In a Name?

Now you may have a better grasp of what Professional Liability Insurance does, but why does it have so many names? In short, different industries have adopted different names for the coverage over the years. It helps to discuss the policy by the name businesses are familiar with. That's why you may see…

These aren't hard-and-fast rules, though. Many industries use the terms E&O and Professional Liability Insurance interchangeably. The important thing to remember is that it means the same thing: coverage for claims over your services.

Lastly, keep in mind that clients may require you to have this policy in place before they hire you. In their eyes, the policy vouches that their investment won't be wasted. If the job doesn't go as planned, the policy offers them a way to recover their losses.

In that sense, having E&O or Professional Liability Insurance can be a good marketing tool for your business and help distinguish you from competitors. Learn more about that in "Why Clients Want You to Have an E&O Policy."

Tags:

Errors and Omissions Insurance | Insurance Terms Explained | Professional Liability Insurance

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