Errors and omissions insurance

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.

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:

• When an alleged mistake occurs, and
• When the claim is filed

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.

Errors and omissions insurance is used most often for insurance agents, real estate agents, tax preparers, and IT professionals.

Lawyers and doctors refer to this policy as legal malpractice or medical malpractice insurance, respectively.

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.