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.
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 your work falls short of this standard, 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 over the mistake, errors and omissions insurance (E&O) helps pay for your 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 in these industries.
However, there are a few specific professions who need errors and omissions coverage more often than others, including:
Errors and omissions insurance protects IT professionals from lawsuits over contract disputes, data breaches, coding errors, and more. Some clients will only work with tech companies that can prove they have an active E&O policy (even if they have cyber liability 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.
Errors and omissions insurance 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.
For example, an insurance agent fails to procure adequate commercial 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.
Errors and omissions insurance helps real estate agents and brokers 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.
E&O 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. Insureon's expert insurance agents can help you choose the best errors and omissions coverage that meets the needs of your small business.
You’ll typically be able to get coverage quickly and receive a copy of your errors and omissions insurance certificate on the same day.
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 insurance will help pay for the client’s property 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 can help your business pay for lawsuits over contingent bodily injuries – which are client or customer injuries indirectly linked to your professional service.
There are typically a couple different scenarios when 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.
Errors and omissions insurance will help provide coverage for legal costs in the event that a client files a lawsuit against you over an accusation that you failed to meet expectations.
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.
Many errors and omissions insurance policies are written on a “claims-made” basis with a retroactive date. This means that in order to collect your insurance benefits, your errors and omissions policy must be active:
With a claims-made errors and omissions policy, your coverage kicks in only when you file a claim during the policy period. Continuous coverage is key if you don't want to pay out of pocket for lawsuits.
The short answer is no. Different industries 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.
General liability insurance covers 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.