Errors and omission insurance guide
Fact-checked with HomeInsurance.com
As professionals and company owners move through day-to-day business operations, there is an ever-present risk of something going wrong or mistakes. Bad advice or an errant plan that results in legal action by a customer or a customer class can easily lead to severe financial distress or even bankruptcy for a company. Errors and omissions is one type of insurance that provides a safety net for such cases.
What is errors and omissions insurance?
Errors and omissions insurance (E&O), a type of liability insurance, protects professionals as well as companies and employees against claims of inadequate work and negligence. Required predominately for those businesses providing professional advice or that provide services, errors and omissions insurance often covers both court costs and settlements up to specified amount in the insurance contract.
Errors and omissions insurance comes under a variety of terms, depending on the industry. For example, professional liability insurance applies to accountants, architects, consultants and engineers. Attorneys carry legal malpractice insurance while physicians carry medical malpractice insurance. Regardless of the term used for the type of policy, professional liability and legal and medical malpractice insurance offer identical coverages to errors and omissions insurance.
Another type of policy — general liability insurance — also covers business owners from onerous legal costs. General liability insurance starkly contrasts to errors and omissions insurance in that it covers customers’ bodily injury and property damage as well as advertising injuries.
What is covered under errors and omissions insurance?
Errors and omissions insurance protects companies and individuals with this type of policy from the full cost of claims made by clients or customers. When lawsuits occur for damages, E&O kicks in to assist with attorney fees and court costs as well as any settlement awarded to plaintiffs.
What is covered?
Errors & Omissions insurance is designed to help protect businesses and professionals in the event of mistakes that affect clients or customers. Primarily, E&O insurance helps cover court costs, attorney fees and associated administrative costs.
E&O insurance applies to the following categories of claims:
- Negligence – refers to substandard levels of care and attention of products or services delivered to clients or customers.
- Errors – refer to such things as clerical errors or mistakes in filing orders.
- Omissions – this commonly includes failure to disclose relevant information.
- Misrepresentation – refers to inaccuracies presented by the professional or business in the scope, level or capability of a product or service.
Insurance brokers and representatives provide additional guidance in the purchase of E&O policies.
What is not covered?
Some of the limitations around errors and omissions insurance include:
- Illegal acts or acts of purposeful wrongdoing – Errors and omissions insurance doesn’t cover claims in cases where the law is intentionally broken or where clients or when intent to deceive customers can be proven customers.
- General liability – E&O insurance doesn’t cover claims of customer or client bodily injury or property damage.
- Employee claims – Workplace injuries or illness and lawsuits related to employment policies and practices aren’t covered by E&O insurance.
Other limitations of E&O insurance also include occurrences dating to before the effective date of the policy. E&O claims stemming to temporary employees may also be exempt from policy coverage.
Who needs error and omissions insurance?
Professionals and businesses offering specialized advice, goods and services need errors and omissions insurance to protect against customer and client claims. The vast range of businesses and industries that need error and omissions insurance includes the following, among others:
- Accounts and financial institutions
- Advertising agencies
- Barbers and beauticians
- Education institutions
- Engineers and engineering firms
- Insurance agents and insurance brokers
- Security companies
- Veterinarians and pet service providers
- Wedding planners
The scope of other professionals and businesses who need errors and omissions insurance extends to those selling products and services where customers may find fault with the standard of quality or care received.
Examples of errors and omissions insurance
In practice, errors and omissions insurance comes into effect in a wide variety of situations.
Take the case of an insurance agent, for instance. While an agent may sell clients various types of insurance policies, a policy that falls short and leaves a client vulnerable to liabilities might well lead to a lawsuit that brings E&O insurance into play.
In the real estate profession, E&O protects agents in cases where a property fails to close, issues of mismanagement occur, errors in disclosures or other professional issues come into play around a deal.
For those in the tax preparation business, errors and omissions issues may lead to the courtroom in cases of missed deadlines, accounting errors or lost documents.
How much does errors and omissions cost?
On average, the cost to small businesses for E&O insurance ranges from $500 to $1,000 per year. Large businesses can pay upwards of $500 to $1,000 per employee per year.
The cost of errors and omissions insurance comes down to a number of variables, including risk levels, coverage limits, business claims history and business location. Employee training, quality control measures as well as ongoing and effective communication with customers can help keep premium costs down.
How to find the right errors and insurance plan
Professionals and business owners purchase errors and omissions insurance either as a standalone policy or include it as part of a business owner’s policy. As most major insurance companies include E&O coverage as part of their product offerings, professionals and owners with existing policy can check with their current provider to either add E&O coverage to their current policy or purchase it as an add-on to their current policy.
A brief list of insurers providing E&O coverage include:
- Acuity Insurance
- AmTrust Financial
- Hanover Insurance
- Liberty Mutual
- Philadelphia Insurance Cos.
- The Hartford
Online marketplaces and insurance sites also provide lists of available providers and other information for E&O coverage.
- Professionals and business owners providing specialized products and services use errors and omissions insurance to protect against potential liabilities and onerous legal costs.
- E&O insurance applies to a variety of businesses and industry categories that range from financial and other professionals to hairdressers and pet groomers.
- E&O insurance does not cover illegal acts, customer deception or employee claims based on workplace policies or practices.
- The cost of errors and omissions insurance depends on business and industry risk, coverage limits and the history of claims made against the policyholder.
Company owners and professionals with errors and omissions insurance gain the freedom to conduct business by mitigating fears of obliteration through long and expensive legal battles. In the event a mistake or unintentional issue occurs, this particular type of insurance can be a valuable protection.