What Is Errors and Omissions Insurance?
Errors and Omissions Insurance (also called Professional Liability Insurance) does what its name implies: it covers your professional mistakes (errors) and the things you overlook (omissions). If you're sued over a professional mistake or oversight, this policy can help you pay for legal expenses.
A typical E&O lawsuit costs $140,584, according to the National Center for State Courts. And that's just the amount awarded to your client – it doesn't include your own legal fees. Tack on another five figures for what you'll pay a lawyer to put your case together.
E&O Insurance is most common in professional service industries such as architecture, engineering, software development, law, medicine, insurance, and accounting. Whenever someone is paying for your expertise, it's a good idea to have insurance that can cover you if you slip up.
Clients often accuse business owners of one of these three things in an E&O lawsuit:
- Professional mistakes.
- Failure to deliver promised services.
- Professional negligence.
Note that what matters here is whether a client thinks you did something wrong – they're the one who initiates the lawsuit. And even if your client's claims are frivolous, you have to defend yourself. If you don't, you risk a default judgment (aka automatically paying whatever they say you owe).
Let's dig in deeper and see how this type of liability insurance can help if you're accused of professional mistakes.