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What Is Errors and Omissions (E&O) Insurance?

Errors and Omissions Insurance (also called Professional Liability Insurance) is a type of coverage that lets you operate your business without worrying that an unexpected lawsuit will force you to drain your business or personal assets. E & O benefits come to the rescue when a client claims that work you're responsible for (such as programming, software installation, networking, etc.) includes mistakes or oversights that caused them a direct financial loss.

Those benefits take the form of payments to reimburse you for certain expenses associated with defending yourself in a lawsuit, including…

  • Lawyers' fees. Even if an Errors and Omissions claim against you is without merit, being faced with a claim means you'll have to present a legal defense. To do that, you'll want to have a lawyer on your side, particularly if your case involves uncharted legal ground. E&O Insurance covers the cost of lawyers' fees up to the limits of your policy, so that you can focus on serving your clients rather than scraping up enough money to pay your legal bills.
  • Other court costs. In addition to paying your lawyer, defending yourself might involve paying docket fees, expert witness fees, transcript fees, and more. Luckily, these are all covered by insurance.
  • Settlements or judgments. If you agree to settle with your client or go to court and are found liable for wrongdoing, your E and O policy will cover the settlement or judgment costs, up to the limits of your policy.

What E & O Insurance Policy Limits Do I Need?

The kind of work you do and the type of clients you serve are two major factors that affect how high your Errors and Omissions policy limit should be. If you work with larger companies, it's usually a good idea to have a higher E&O limit. Why? Because a mistake that prevents a large company from operating (even for a day) could cause a much greater financial loss than one that prevents a sole proprietor from operating, and you'll want a policy that can compensate these losses.

Next: Why Do IT Professionals Need E and O Insurance?

70% of businesses raise prices or cut hiring when sued