Errors and omissions insurance

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.

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:

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

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.

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.

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.