Errors and Omissions Insurance
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When is errors and omissions insurance required?

Federal and state laws mandate errors and omissions insurance for certain professions. Small businesses may also need it to fulfill the requirements of a client contract or a licensing body.

How does E&O insurance help your risk management plan?

No matter how carefully you manage your books, review your contracts, vet your customers, or monitor your employees, you can't control everything. Errors and omissions insurance (E&O), also called professional liability insurance, protects your cash reserves when a mistake or oversight happens, or your business is accused of inadequate work, and a client sues.

Errors and omissions insurance also protects against accusations of negligence when your business is not at fault. In either case, E&O can help pay for legal defense costs such as attorney's fees, administrative costs, expert witness and consulting fees, court costs, and the eventual cost of a settlement or judgment.

E&O insurance covers professional mistakes and oversights

E&O insurance coverage can help pay your legal fees and other defense costs in the following scenarios:

  • A client accuses your IT business of improperly installing software, which made them lose sales while the system was down. They sue you for damages.
  • A client follows your advice about how to increase efficiency at their company, but the client ends up incurring more in costs. They blame you and sue for professional negligence.
  • A simple typo on your calendar causes you to miss a crucial shipping deadline. The products don't make it to your customer in time, so they sue you for the cost of replacement goods.

Is E&O insurance required by client contracts?

Often, larger contracts or bigger, more sophisticated clients require your business to plan for contingencies by carrying an E&O insurance policy to cover potential mistakes or mishaps. This policy provides your clients with peace of mind since they know your business could withstand a potential lawsuit.

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Who needs an errors and omissions insurance policy?

Every industry involves different risks. In certain industries, the risk is so significant that an error or negligent performance on your part could severely impact your client's finances. To address these heightened stakes, some federal and state laws set minimum E&O coverage requirements for certain professions. Note that E&O is also called professional liability insurance or malpractice insurance, depending on the industry.

Examples of professionals required to carry E&O insurance

The following professionals are often required to carry errors and omissions coverage:

Other laws indirectly touching your industry might make E&O coverage virtually required, too. For example, a mistake made by an accountant or a tax preparer could lead to legal action against a client, which necessitates a sufficient E&O policy.

For other industries, such as insurance professionals and real estate agents, you may see requirements for professional liability insurance, which is another name for E&O insurance. It is important to check the state laws where you are located to ensure you have the required coverage for your business.

What is the difference between professional liability and E&O insurance?

View video transcript.
Insurance jargon can be difficult to follow when a policy is called by multiple names. One example is professional liability, also known as errors and omissions, or malpractice insurance. The coverage is the same, but the name may depend on the type of business that the coverage is for. For architects and consultants, this policy is called professional liability. In the real estate and IT sectors, it’s errors and omissions. And, for medical and legal professions, it’s known as malpractice insurance. Like most insurance policies, the cost may vary depending on several factors, such as location and industry. Get free liability insurance quotes with Insureon today. Click the link to get started.

How does your claims history affect E&O insurance rates?

Sometimes, entrepreneurs only buy errors and omissions insurance coverage when they need it to fulfill the terms of a contract. But when that particular job ends, they let the policy lapse, thinking they can just buy another policy later if the need arises.

There are two major problems with this approach:

A history of short-term policy buying makes it increasingly harder to get the next E&O policy

Insurers balance the premiums they receive over the length of the policy against the large payouts when something goes wrong. Because short-term, buy-and-drop tactics upset that balance, you might find yourself uninsurable and completely exposed.

E&O insurance is a claims-made policy

Errors and omissions is a claims-made policy. That means for the provider to cover a lawsuit, the same policy must have been in place both at the time of the incident leading to the claim and when the claim was actually filed.

So even if you've had multiple E&O policies in the past, you're really only protected during your most recent and active policy period up to your coverage limits.

For these reasons, it's best to get one E&O policy and keep it for the entire life of your business.

How do I get errors and omissions insurance?

Complete Insureon’s easy online application today to compare E&O insurance quotes from top-rated U.S. providers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.

Once you have you coverage, you can also contact an insurance agent to make sure you have E&O and any other necessary business insurance to help your business secure large contracts, comply with legal regulations, and protect your company from litigation disasters.

Updated: February 12, 2024
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