What is Errors and Omissions Insurance?
Errors and Omissions insurance is known by several names: E&O insurance, professional liability insurance, professional indemnity insurance, and malpractice Insurance. It is business insurance for professionals who make a living using their expertise—whether you're in real estate or designing a skyscraper. If you make a professional error, are inadvertently negligent, make an omission in important documents, etc. E&O insurance steps in to protect your business.
Errors & omissions insurance covers court costs, judgements, settlements, administrative costs, and other legal expenses brought against you and your business for any faulty advice or professional services your company may provide. In general, it is designed to protect the business from legal costs and damages awarded as a result of:
- Alleged or actual negligence
- Undelivered services or missed deadlines
- Copyright infringement
- Breach of nondisclosure
- Claims of libel or slander
- Data breaches
Is E&O Insurance the Same as Professional Liability?
The short answer is yes. They are different names for the same type of insurance coverage. What it's referred to as (E&O insurance, errors and omissions, professional liability insurance, professional indemnity, or malpractice insurance) varies from industry to industry.
What is Excluded from Errors and Omissions Insurance?
E&O insurance does not cover occurrences that are covered under general liability insurance such as third party bodily injury, property damage, or the cost lawsuits related to those occurrences. Small business owners will need to obtain a separate policy for general liability. To learn more about the differences between general liability and professional liability, check out our gandy guide: 'General Liability vs. Professional Liability Insurance'.
E&O Insurance also excludes from coverage:
- Intentional fraud
- Illegal activity
- Punitive awards
- False Advertising
- Stealing patents or trade secrets
Who Needs Errors and Omissions Insurance?
Most professionals should carry E&O insurance. This includes but isn’t limited to:
- HVAC Installers
- Insurance agents
- Event planning services
- Advertising agencies
- Web Developers
- Real Estate Agents
Who Does E&O Insurance Cover?
Errors and Omissions Insurance typically covers:
- Business Owners
- Salaried or Hourly Employees
Is E&O Insurance Legally Required?
Regulatory and licensing boards in some states require that you carry professional liability insurance. Be sure to check with your licensing board to make sure you have the proper coverage in place before you begin operating your business. While it may not be legally required, deeply consider the services you offer and whether or not they open you up to liability. Any errors made with the services you provide can result in costly court battles, so decide wisely.
Why Errors and Omissions Insurance is Necessary
Can your small business cover a major lawsuit without professional liability insurance? Most can’t fathom managing the costs that come with a lengthy legal battle. Anyone can bring a lawsuit at anytime against anyone in America. There is no pretrial procedure where the plaintiff has to prove that there is sufficient evidence to continue with a suit.
We share some examples to drive home the realities you may face and why it’s imperative you obtain an errors and omissions policy:
Example #1: An event planner books a venue for a convention on the wrong day. Everyone shows up to find the venue has the convention booked the following day. E&O insurance will cover judgments, legal costs and settlements up to the policy limit.
Example #2: An electrician is hired to rewire someone’s outdated kitchen. In the process, he incorrectly wires an outlet. It sparks and the homeowner’s kitchen starts on fire. They decide to sue the electrician for his error and negligence. But because the electrician has errors and omissions coverage, they cover the cost of the settlement and legal fees.
Example #3: An Architect is hired to design and manage a project. However, his design is found faulty upon the building's first inspection. It sets the project back weeks to properly rebuild. The architect is sued for his negligent error by the owner of the project. His errors and omissions insurance coverage steps in to cover legal costs and associated penalties.
Example #4: An accountant is unable to keep up with his current client-load and fails to file a customer's tax return by the deadline. The client is slapped with a hefty fee. Because they believe the tax preparer was in error, they sue him to recover the cost of the fine. Errors and omissions insurance can cover the cost associated with the lawsuit.
Even if you were not negligent, proving so can still cost immense amounts of money as you deal with legal defense fees, court costs, and even potential settlement costs.
Other Insurance Polices to Consider
Odds are your business will need coverage in addition to E&O Insurance. What you need varies depending on the type of business, but here are a few to consider:
- Commercial Property Insurance: If your business has a physical location, consider property insurance to protect the building and physical assets.
- Business Owners Policy: A business owners policy is an affordable way to bundle general liability insurance and property insurance. It typically doesn't include E&O Insurance.
- Cyber Liability Insurance: If you are a professional that deals with protected client information, consider adding cyber liability to protect your business in case of a data breech that exposes client information.
- Workers' Compensation Insurance: If your business has employees, workers comp protects them in case of on-the-job injuries or illness. It can cover the expense of their lost wages and medical expenses so you don't have to.
The Average Cost of Errors and Omissions Insurance
An errors and omissions insurance policy varies in cost depending on numerous factors an insurance company takes into consideration:
- The industry of the small business
- Location of the business
- Claims history
- coverage limits and deductibles chosen
There isn't a one-size-fits-all business insurance policy. Every business comes with its own unique risk factors. The cost can be anywhere from $500 to $1,000 annually per person, with an average of around $700 (depending on the insurance company). The cost varies but one thing is certain—the cost of not having professional liability insurance in place can be overwhelming.
Get a FREE Errors and Omissions Insurance Quote
As we are fond of reminding you, each business—each situation—is different, and we urge you to discuss this with your licensed insurance professional to see how best to protect yourself. Ask questions and make sure you know not only what is covered, but any exclusions in the business insurance policy. We can help connect your business with the right insurance company and the right policy for you. Complete the form above and one of our agents will connect with you soon.