Errors and omissions insurance (E&O) helps cover the cost of a lawsuit if a client claims your work was inaccurate, late, or never delivered. It’s sometimes called professional liability insurance.
If you provide professional advice or services to clients, you likely need this policy.
Your clients might require errors and omissions insurance in the terms of a contract. And it’s strongly recommended for professionals who make a living off their expertise.
E&O insurance, also called professional liability insurance, protects your business if you’re accused of a mistake, oversight, or professional negligence.
This policy will cover legal defense costs related to the lawsuit, including court costs, settlements, and judgments. You’ll typically pay a deductible, and your insurance provider will pay legal expenses up to your coverage limit.
When it comes to your small business, its success stems from your expertise, fulfilled contracts and happy clients. But what if a client is unsatisfied with the outcome you delivered? This is where a policy like errors and omissions can help.
So, what is errors and omissions insurance? Also known as professional liability insurance, E&O helps protect your business from lawsuits filed by unsatisfied clients.
This coverage applies to work mistakes and oversights, undelivered services, missed deadlines, and accusations of negligence.
Based on several factors including risk, business size, and claims history, the cost of E&O coverage can vary from business to business.
Get free errors and omissions insurance quotes from Insureon today. Click the link to get started.
Most E&O claims are straightforward, such as failing to deliver a product or service as promised. However, claims of professional negligence can be more complicated.
When a client hires you to provide a specialized skill, they’re entitled to a reasonable standard of care. If you deliver inadequate work, the client can sue for professional negligence.
Specifically, errors and omissions insurance coverage includes:
Even a small professional error or oversight could end up costing a client money. When the client tries to recoup their losses by suing your business, errors and omissions insurance helps pay for attorney's fees and other legal costs.
If your business leaves work unfinished, it can interrupt your client’s business plans. When you fail to deliver promised services, a client could sue – especially if it negatively impacts the client’s bottom line.
If your business fails to meet minimum industry standards while working with a client, the client might sue your business for negligence. A dissatisfied client could still sue for negligence even when there’s nothing wrong with your work.
If your business misses a deadline, it could delay your client’s business plans and result in lost revenue. If a client sues your business over late work, errors and omissions insurance can cover the cost of the lawsuit.
Errors and omissions insurance benefits a variety of industries that provide services directly to a client or customer. It is designed for both businesses and independent contractors that make a living off of their expertise.
Some professionals may need this coverage to work for a certain client or to comply with state laws. Industries that often require E&O coverage include:
IT professionals typically buy technology errors and omissions insurance (tech E&O), which includes both E&O insurance and cyber insurance. This bundle protects against lawsuits over contract disputes, coding errors, and data breaches.
Some clients will only work with tech companies that can prove they have an active E&O insurance policy, even if they have cyber insurance.
For instance, a client hires an IT consultant to protect their customer data, but a data breach exposes the names and credit card details of thousands of customers. The client believes the IT consultant should have been able to prevent the incident and files a negligence lawsuit.
E&O coverage for insurance agents can protect against an oversight that left a client vulnerable to liabilities. It also covers bad advice that led to inadequate coverage. Some clients may require proof of E&O insurance before they agree to work with you. It's also required in some states, depending on the type of work you do.
For example, an insurance agent fails to procure adequate auto insurance coverage for a client, despite promising to do so. When the client gets in an accident and goes to make a claim, they’re surprised to find themselves uninsured. They sue the insurance agent for failing to secure the appropriate coverage.
Some states require errors and omissions insurance for real estate agents and brokers. This policy helps pay for lawsuits over failure to close, mismanagement, disclosure errors, or other professional issues. Unless you can prove you carry an E&O policy, some clients, buyers, or sellers may refuse to work with you.
For instance, a real estate agent makes an error on an MLS sheet, incorrectly listing a home’s square footage as more than it is. The homebuyer realizes the error after purchasing the home and sues the agent. The real estate agent’s E&O policy covers the cost of hiring a lawyer and the eventual court-ordered judgment.
Errors and omissions insurance for tax preparers covers the costs of lawsuits over missed deadlines, accounting errors, or lost documentation. This policy offers indirect protection for the client if there’s a mistake in their taxes. That’s why some clients will ask for proof of insurance before they’ll use your financial services.
For example, a tax preparer fails to file a client’s tax return before the deadline and now the client is forced to pay a costly fine. To recoup the fine, the client sues the tax preparer for missing the filing deadline.
Complete our easy online insurance application to get free quotes from top-rated providers. Insureon's expert insurance agents can help you choose the best errors and omissions coverage for your business's needs.
You can typically get coverage quickly and receive a copy of your errors and omissions insurance certificate on the same day you apply for quotes.
While errors and omissions insurance covers many aspects related to legal action from a client, it does have a number of coverage exclusions. For example, it only covers the cost of defending against lawsuits – it doesn't pay for lawsuits you initiate. Also, mistakes that are made intentionally are not covered.
Unless your policy has prior acts coverage, it will only cover any claims filed while the policy is active and for incidents that occurred after you bought the policy. In this case, endorsements can fill gaps in your errors and omissions coverage.
Other exclusions from errors and omissions insurance coverage include:
If you accidentally damage a client’s property or a client is injured at your office, general liability coverage will help pay for the client’s property repairs or medical care. This policy can also cover your legal expenses if the client sues.
If an employee suffers a work-related injury or illness, workers' compensation insurance can cover their medical expenses, as well as partial lost wages for the time they take off work.
If a job candidate or employee sues your business for harassment, discrimination, or wrongful termination, then employment practices liability insurance (EPLI) can cover the cost of your legal fees, as well as the cost of a settlement or judgment.
If your business property is damaged, destroyed, stolen, or lost, then the property coverage included in a business owner’s policy (BOP) can pay to repair or replace the affected items.
Product liability insurance covers costs if a product made, sold, or distributed by your small business injures a customer or damages their property. It's usually included in general liability insurance.
There are a couple different scenarios where a business may be required to have errors and omissions insurance coverage.
Clients may request a certificate of insurance as proof that you have coverage in order to secure a contract. This way, they know that in the event that you make a costly mistake or don't meet their standards, they will be able to recoup their losses.
Additionally, if you decide to apply for certain professional licenses, many states will require that you hold errors and omissions insurance before you can submit your application.
Having a certificate of insurance makes it easier to establish trust in your business, as you can then show licensing boards, clients, and others that if you make a mistake in your professional work, you’re able to pay for any negative outcomes. It's a key part of risk management for those who provide expert advice or services.
Errors and omissions insurance provides coverage for legal costs related to accusations that you failed to meet expectations or were negligent in your work.
To make an errors and omissions claim, you can call your insurance provider. They will then ask you to provide some basic information, such a description of the incident and your policy number.
Most errors and omissions insurance policies are written on a claims-made basis. This means that in order to collect insurance benefits, your errors and omissions policy must be active:
With a claims-made errors and omissions policy, you can also set a retroactive date to secure coverage for work you've done in the past. Continuous coverage is key if you don't want to pay out of pocket for lawsuits.
The short answer is no. Different types of businesses use different terms for the same type of coverage. You may also see errors and omissions insurance called professional liability insurance, even though they’re identical except for the name.
General liability and errors and omissions insurance both protect against common small business liability claims, but they cover different types of lawsuits.
A general liability insurance policy would cover claims of customer bodily injuries, customer property damage, and advertising injuries. In contrast, errors and omissions insurance covers any legal defense costs when a client or customer suffers a financial loss due to your professional services or advice.
If you want to learn more about this policy, you can find additional answers in our frequently asked questions about errors and omissions insurance.
If there are any additional questions you have about coverage, you can also contact an Insureon agent.
Your small business can save money on errors and omissions insurance by avoiding claims and choosing a higher deductible, among other methods. Learn how you can pay less on E&O and still get the protection you need.