Errors and Omissions Insurance
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Errors and omissions insurance

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Errors and omissions insurance

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.

Why is errors and omissions insurance important?

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 or professional indemnity 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.

A small business owner discussing their errors and omissions policy with a client

Three reasons E&O insurance is important for small businesses:

  • Fulfills contractual obligations
  • Some states require it for specific professions
  • Covers legal defense costs up to your policy limit

See how errors & omissions insurance protects you from lawsuits

View video transcript.

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.

What does E&O insurance cover?

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:

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Work mistakes and oversights

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.

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Undelivered services

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.

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Accusations of negligence

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.

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Missed deadlines

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.

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Misrepresentation

If a client accuses you of making a false statement to secure a contract, such as exaggerating your level of experience or knowledge of a subject, the client could sue your for misrepresentation. If a buyer thinks a realtor falsely described the conditions of a building or a neighborhood, they might seek compensation in court.

How much does errors and omissions insurance cost?

A small business owner calculating their errors and omissions costs

Your cost is based on a few factors, including:

  • Amount of coverage
  • Claims history
  • Industry risk factors
  • Business size
  • Day-to-day operations

E&O insurance costs an average of $61 per month. 32% of Insureon’s small business customers pay less than $50 per month for their policy.

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Who needs errors and omissions insurance?

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

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.

Insurance agents

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.

Real estate agents

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.

Tax preparers

E&O 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.

How do I get proof of errors and omissions insurance?

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.

Get free errors and omissions insurance quotes

What does errors and omissions insurance not cover?

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:

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Customer injuries and property damage

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.

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Employee injuries

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.

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Employee discrimination lawsuits

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.

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Damage to business property

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.

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Vehicles used by a business

Most states require commercial auto insurance for all business-owned vehicles. If your business uses personal or rented vehicles instead, you'll need to purchase hired and non-owned auto insurance (HNOA).

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Harm caused by a product

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.

Other important policies for small business owners who purchase E&O insurance

While errors and omissions insurance can be an important part of your risk management plan, you should consider these other small business insurance policies to fully protect your business from financial losses:

General liability insurance: Covers common business risks like customer injury, customer property damage, and advertising injury. It protects your small business from the high costs of lawsuits and helps you qualify for leases and contracts.

Business owner's policy: A BOP bundles general liability coverage and commercial property insurance at a discount. It protects against the most common third-party lawsuits and property damage. 

Workers’ compensation insurance: Covers the medical costs and lost wages related to workplace injuries and illnesses among employees. Most states require employers to carry this coverage.

Commercial auto insurance: Required in most states for businesses that own vehicles, this policy covers your legal bills, medical expenses, and property damage if a business vehicle is involved in an accident.

Hired and non-owned auto insurance (HNOA): Provides liability coverage for accidents involving personal, leased, or rented vehicles used by your business.

Need a policy recommendation? Answer three questions and we can help you find the right coverage for your business.

FAQs about errors & omissions insurance

Review answers to common questions about E&O insurance.

When do you need errors and omissions insurance?

Small business owners may be required to carry errors and omissions insurance in the following situations:

  • Your state might require it for your profession. For example, some states mandate a certain amount of E&O coverage for real estate agents.
  • Clients might ask you to buy E&O insurance. In many fields, clients might ask you to carry an E&O policy in order to protect themselves against potential legal costs. You may need to produce a certificate of insurance to show that you're insured and to sign a contract.
  • You might need E&O coverage for a license. Depending on the type of work you do, your state licensing board might require you to carry E&O insurance as part of its licensing requirements.

Even when it's not required, E&O insurance is a key part of risk management. Without it, a simple mistake or oversight could lead to a lawsuit that could devastate your business.

How does errors and omissions insurance work?

Errors and omissions insurance covers legal defense costs related to accusations that you failed to meet expectations or were negligent in your work.

You'll need to contact your insurance company in order to make an errors and omissions claim. It's a good idea to have the relevant information on hand, such as your policy number and details about the incident.

Be aware that errors and omissions insurance is a claims-made policy. That means your policy must be active both at the time of the incident and when the claim is filed in order to benefit from coverage.

When you buy an E&O policy, you can set a retroactive date to secure coverage for work you've done in the past. With this type of insurance, it's important to maintain continuous coverage so you don't end up paying for legal fees out of pocket.

Is there a difference between errors and omissions insurance and professional liability?

This coverage has a few names, but they all refer to the same policy. Different types of businesses use different terms:

How does errors and omissions insurance differ from general liability insurance?

Most small businesses can benefit from carrying both general liability and E&O insurance, as these policies protect against different types of lawsuits.

You can look to a general liability policy for protection against common accidents, such as customer slip-and-fall injuries or accusations of slander. These types of liability claims can happen at any business.

On the other hand, an errors and omissions insurance policy will cover claims of professional negligence, not bodily injuries. You'll want to consider this coverage if your work could harm a client's finances. It's recommended for businesses that provide professional services or expert advice to clients.

Where can I learn more about errors and omissions insurance?

You can find answers to other common questions about E&O insurance in our frequently asked questions about errors and omissions insurance.

For questions about coverage, you can also contact an Insureon agent who can discuss your coverage options and give you insurance quotes from trusted providers.

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How to get cheap E&O insurance

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.

Updated: January 30, 2024
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