Errors and omissions insurance

Errors and omissions insurance, also called professional liability insurance, protects your company from the high costs of a lawsuit related to unsatisfactory work, including legal fees and settlements.

You earn a living by providing professional advice or services, but it could also put you in the crosshairs of a client lawsuit. Any business that offers advice or services should consider errors and omissions insurance.

Even if you have several years of experience or are highly trained, accidents and mistakes are bound to happen. An E&O policy gives you the necessary financial protection to keep your business afloat during these instances.

Unhappy customers are a fact of life in business. But when a customer claims your mistake or negligence cost them money, you may end up in court.

E&O insurance covers you against:

Any company that provides a service to a client can be accused of inferior work or miss a deadline due to unexpected delays. If a client sues, the costs can do serious damage to your small business—whether or not you’re at fault.

Bottom line, any small business owner that provides professional services, such as design businesses like architects and engineers, could benefit from this policy as part of its risk management plan. And that’s doubly true if your inadequate work or mistake causes a client financial loss.

That's why errors & omissions is especially crucial (and sometimes required by state law) for the following types of businesses:

E&O insurance covers IT and software professionals from lawsuits over contract disputes, coding errors, and more. Some clients will require IT companies to prove they have an active E&O policy before they agree to work with them.

For example, a client hires an IT consultant or software developer to create a customer database, but due to a coding error, hundreds of customers are missing. The client believes they suffered a loss of income because of this mistake and files a lawsuit. An E&O policy would help pay for the IT professional's legal fees. 

An errors and omissions policy helps pay for lawsuits over mistakes by cybersecurity experts and SaaS companies. This includes software that doesn't meet client requirements, failure to deliver a solution on time, or coding errors in their software.

For example, if a cybersecurity professional takes longer than expected to implement a multi-component cybersecurity program for a client, and the client sues over the missed deadline, E&O would cover the cybersecurity business’s legal expenses.

Or, suppose a SaaS company's server goes down for a few days, which causes several e-commerce clients to lose out on transactions. If they sue the company to recoup their losses, E&O would handle attorney’s fees and other defense costs.

E&O coverage helps safeguard insurance agents against potentially costly claims, such as an oversight that negatively impacted a client. It also covers bad advice that led to inadequate coverage.

Some customers may require proof of E&O insurance before working with your agency. Depending on your state and the type of services you provide, it may also be required by law.

Should an insurance agent provide inadequate auto coverage, a client may sue if they try to make a claim after a car accident and discover they’re uninsured.

There are several professionals who make their living by advising others with their knowledge and expertise, such as notaries, travel agents, and recruiters. Even a minor mistake, miscalculation, or unfounded piece of advice can negatively impact a business and lead to a lawsuit.

With errors and omissions coverage, professional service providers can feel protected from devastating financial losses in the event a client is unhappy with the services provided.

Depending on their state of operation, real estate agents and brokers may be required to carry errors and omissions insurance. Without proof of insurance, some clients, buyers, or sellers may refuse to work with you.

This coverage helps pay for lawsuits related to failure to close, mismanagement, misrepresentation, disclosure errors, or other professional issues.

For example, if a real estate agent incorrectly lists a home’s square footage as more than it is, and the homebuyer realizes the error after purchasing the home, they'll likely sue the agent. The real estate agent’s E&O policy will handle the cost of hiring a lawyer and the eventual court-ordered judgment.

E&O insurance for tax preparers can help cover the costs of lawsuits over missed deadlines, accounting errors, and lost documentation. Because of the indirect protection this policy offers for clients, some of them will ask for proof of insurance before they’ll use your financial services in the event there’s a mistake in their taxes.

Let's say a tax preparer fails to file a client’s tax return before the deadline and the client is forced to pay a costly fine. The client will likely sue the tax preparer for missing the filing deadline to help recoup the cost of the fine.

Errors and omissions coverage protects consultants from lawsuits related to recommendations, guidance, and advice they provide during the course of their consulting services. This policy is often purchased by management consultants, marketing consultants, and other advisory professionals.

For example, an education consultant is hired by a university to assist with starting a new department. The school later sues, alleging that the consultant failed to adequately prepare the required documentation, resulting in loss of tuition revenue. Errors and omissions insurance would protect the consultant from the related legal defense costs.

Errors and omissions covers many common risks for professionals, but it doesn't cover everything. Here are some examples of situations and incidents where E&O would not provide coverage:

Find answers to commonly asked questions about errors and omissions insurance.

TechInsurance is a trusted insurance expert for all small businesses, including contractors and consultants, with extensive knowledge of the IT sector.

With TechInsurance, you can easily download a certificate of liability insurance for your small business, often on the same day you buy errors and omissions coverage or another insurance product.

This comes in handy for companies and consultants that need proof of insurance to sign a contract or a lease and don’t have time to call an insurance company for documentation. Clients and landlords may ask for a certificate of errors and omissions insurance to show you’re insured.

Errors and omissions insurance provides indemnity for you and your business in the event that you are sued over professional mistakes or unmet expectations.

If your client reaches out and lets you know they will be suing, you'll need to initiate a claim with your insurance company.

First, contact your carrier, provide your policy information, and explain the circumstances. Your insurance representative will work with you to navigate the situation and determine the best course of action for the lawsuit.

Keep detailed, thorough records of the situation to ensure you and your business are protected to the best of your abilities.

It’s tempting to drop your business insurance once you stop working for a client, get a full-time job, or retire, but for E&O that’s a big mistake. Errors and omissions insurance is a claims-made policy. That means you’re only covered if your insurance policy was active both when an incident happened and when the claim was filed.

For example, say an IT consultant buys E&O for coverage when helping a client try and win a big grant. The consultant lets the policy lapse after the client submits a grant application. Three months later, the grant is denied. If the client sues the consultant, the insurance company won’t help since the policy period has ended.

That’s why it’s crucial to keep this type of insurance active – even when you think you no longer need it.

Luckily, if you need coverage for past events, you have options. Ask your insurance company about setting a retroactive date for coverage when you apply.

E&O insurance has exclusions that limit the scope of its coverage. For example, it won't pay the legal defense for lawsuits that allege your business discriminated against or abused its clients.

It also only covers the cost of lawsuits filed against your business. That means if you file a lawsuit against a client over a contract dispute or other issue, it won't be covered.

Your policy will cover claims that you file while the policy is active for incidents that occurred after you purchased coverage. If you need continuous coverage, you can add prior acts coverage to your policy.

You can fill other gaps in your E&O coverage with insurance endorsements. To make sure you have the right coverage, contact a TechInsurance insurance agent.

Because these two policies protect against different types of lawsuits, most small business owners can benefit from carrying both general liability and E&O insurance.

Typically, general liability offers protection against common accidents, like a customer slipping and falling in your office or accusations of slander. These types of liability claims can happen at any business.

Conversely, an errors and omissions insurance policy helps cover claims related to the professional services you provide, not bodily injuries. Small business owners should consider this coverage if their work could harm a client's finances. It's recommended for businesses that provide advice or expert guidance to clients.

Read more about the differences between general liability and errors and omissions insurance.

If you want to learn more about this policy, you can find additional answers in our frequently asked questions about errors and omissions insurance. 

You can complete an easy online application to obtain free quotes to find the best errors and omissions coverage for your business.

If you have any additional questions about coverage or how to compare quotes, you can also contact a TechInsurance agent.