Who needs errors and omissions insurance?

Insureon Staff.
Errors and omissions (E&O) insurance can cover your legal expenses if an unsatisfied client sues your business for any mistakes or oversights. Anyone who provides professional advice or services to clients will likely need this policy.
A business owner reviews a document with a client.

Errors and omissions insurance (E&O) is used by professional service providers to protect them from lawsuits and financial losses over claims of unsatisfactory work. This includes those who offer professional advice, such as realtors, insurance professionals, tax preparers, and IT professionals.

Understanding what this coverage offers can provide a clearer picture of why you may need it as part of your risk management plan.

What does an E&O insurance policy cover?

Errors and omissions insurance, which is sometimes called professional liability insurance, helps cover the cost of a lawsuit if a client should ever claim that you made a mistake that cost them money. Should a customer claim that your work was inaccurate, turned in late, or never delivered, your E&O coverage can help pay your court costs and any settlements.

Is E&O insurance required?

Some clients may require this coverage to sign contracts, especially when doing business with government entities and larger companies.

Errors and omissions coverage usually isn’t legally required outside of a few different industries. For example, medical malpractice insurance, a form of E&O insurance for healthcare professionals, is often required by state law.

Who should consider carrying E&O coverage?

Any small business that offers advice to customers and handles confidential information should consider the financial protection offered by an E&O policy, as the defense costs and attorney fees can be considerable if you ever face a lawsuit.

Independent contractors may also benefit from carrying errors and omissions insurance. Even when the contractor is not at fault, a client could sue if they perceive that the work completed did not meet agreed upon expectations.

While it is recommended that most small businesses with these types of client relationships consider purchasing E&O insurance, there are a few industries where it may be more critical to carry this policy than in others.

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How does errors and omissions insurance protect different types of businesses?

Depending on your profession, there are a number of different scenarios that could land your business in hot water. Even a frivolous lawsuit can be expensive, especially on an errors and omissions claim. E&O insurance coverage can help protect against most risks associated with different businesses, including:

Insurance agents and agencies

Insurance agents advise their customers on the amount of coverage they need, leaving them open to face accusations of professional negligence, making a mistake in coverage, or failing to deliver on a promise of services. Imagine how expensive it could be if a client sues your agency on a claim of inadequate coverage based on your advice.

Real estate

Realtors negotiate with clients on price listings and legal disclosure issues, which could result in a client lawsuit. A customer might accuse them of negligence or a breach of their fiduciary duties, such as failing to disclose an issue with a property.

Accounting and tax preparation

Accountants and tax preparers could have a client accuse them of bookkeeping errors, making a mistake on a tax return, or missing a deadline. For example, a client might accuse a stockbroker or financial planner of giving poor investment advice. Just about anything that results in a client losing money could lead to an expensive lawsuit.

IT professionals

IT and related fields, such as IT consultants, computer repair, and software developers, could face an expensive lawsuit if they make a mistake, fail to deliver on promised services, or if a client blames them for a cyberattack or a loss of data.

Tech companies often combine errors and omissions with cyber liability insurance in a bundle that is commonly referred to as technology errors and omissions insurance, or tech E&O.

How much does errors and omissions insurance cost?

The cost of errors and omissions insurance is based on the amount of coverage you need, your claims history, the type of risks faced by your industry, your business size, and your day-to-day operations.

For Insureon customers, the average cost for E&O insurance is $59 per month, while 18% of Insureon’s small business customers pay less than $42 per month for coverage.

How much errors and omissions coverage do I need?

Your coverage depends on several factors including your industry, your location, the size of your business, and the types of clients you deal with.

The claim limit on errors and omissions can range from $250,000 to $2 million or more, although most Insureon customers opt for $1 million in coverage.

Keep in mind that you have two coverage limits in an errors and omissions insurance policy: per-occurrence and aggregate.

The per-occurrence limit is how much the insurance company will pay on each individual claim or incident. The aggregate limit is for the policy period, which is usually one year.

If you might face more than one claim per year, make sure your aggregate coverage and policy limits will meet your needs.

What’s the difference between E&O and professional liability insurance?

Errors and omissions, professional liability, and medical or legal malpractice insurance are all essentially the same thing, but some industries use different terms for the same type of liability coverage.

E&O is most used by those in real estate, insurance, IT professionals, and tax preparers. Professional liability coverage is typically used by architects, consultants, engineers, and accountants and auditors.

Lawyers and healthcare professionals refer to this coverage as legal or medical malpractice insurance, respectively.

Does general liability insurance cover errors and omissions?

No, general liability insurance covers liability claims for common business risks, like a customer’s bodily injury at your business, customer property damage, and related legal fees. Errors and omissions insurance covers claims of inadequate work and oversights.

Learn more about the difference between E&O and general liability insurance.

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