Errors and omissions insurance for independent contractors

Errors and omissions insurance, also known as E&O or professional liability insurance, protects you from lawsuits over your work mistakes, including:

• Incorrect or incomplete work
• Missed deadlines
• Breach of contract
• Negligence

Even if you did nothing wrong, a legal defense can cost you time and money.

As an independent contractor, you run the risk of being sued by a client – and your client’s customers. Should something go wrong and your client is sued, you could be named as a defendant too.

If you find yourself on the wrong end of a professional liability lawsuit, your E&O policy will cover:

• Attorney’s fees
• Settlements or judgments
• Court costs

Once you purchase a policy, it’s important to keep it active. Under a claims-made policy, you’ll only receive compensation if you’re covered at the time of the incident. Any professional liability claims prior to your retroactive date (the day your coverage began) will be denied.

With E&O coverage in place, you’ll have peace of mind that your legal bills are covered and your bottom line is protected.

Many independent IT contractors choose to purchase technology errors and omissions insurance (tech E&O), which combines errors and omissions coverage with cyber liability insurance.

Tech E&O insurance covers a range of liability risks, including the costs of a data breach lawsuit. It’s a budget-friendly option for independent contractors who could be blamed for a data breach or other cyber incident that affects a client. It’s typically cheaper than buying these policies separately.

If you make your living off your expertise, you may need errors and omissions coverage. Any contractor who provides professional services or offers clients expert advice is at risk for a professional liability lawsuit.

Independent contractors who benefit from E&O insurance include:

• IT consultants
• Project managers
• Cybersecurity professionals
• Software developers
• Web designers
• Computer repair businesses

Errors and omissions insurance isn’t usually required by law for independent contractors. However, clients and staffing agencies may require it in their contracts.

Your E&O policy will cover you for any professional liability claims made against your business, including frivolous lawsuits. In some circumstances, you may be able to add a third party (such as a business partner) as an additional insured to your policy for an extra cost.

Don’t count on it. There’s a small chance that your client may add you to their professional liability policy as an additional insured, but it’s more likely that they’ll require you to carry your own coverage.

Probably not. As an independent contractor, you may need to hire a subcontractor to handle part of a project. However, you probably won’t be able to add them as an additional insured under your own errors and insurance policy because the extra cost you’d pay wouldn’t cover the additional risk.

Instead, require any subcontractor to carry their own coverage and provide you with a certificate of liability insurance so you aren’t held responsible for their mistakes. The limits of their policy should match your own.

You may also want to contact their insurer to verify their coverage hasn’t lapsed for any reason.

Your clients may also require you to provide a certificate of liability insurance as proof of errors and omissions coverage.

The good news is, getting a certificate is fast and easy. Once you purchase your policy, you should receive your certificate by email immediately or within a couple of hours. You can also download a copy of your certificate at any time.

Errors and omissions coverage can be a critical part of your risk management strategy as an independent contractor. But you may also need to consider additional business insurance coverage.

Other types of insurance to protect your business may include:

General liability insurance is actually the most common type of insurance purchased by independent contractors. It protects your business from some of the most common business risks, such as:

• Third-party bodily injury
• Third-party property damage
• Advertising injury, including defamation, libel and slander

Any time you visit a client, you run the risk of damaging their property. Or if a client injures themselves at your place of business, you could also be held liable. General liability coverage ensures you won’t have to pay legal bills out of pocket.

You should understand your intellectual property rights as a contractor when it comes to software. You also need to take care not to violate someone else’s rights, or you could be accused of copyright infringement. If you’re sued, your general liability insurance policy will protect you.

You may want to consider a business owner’s policy (BOP), which combines general liability insurance and commercial property insurance. It also protects business property such as laptops from theft or damage.

In some states, you’re required by law to carry workers’ compensation coverage as an independent contractor. While state laws will usually allow single-person businesses to opt out of coverage, some states don’t. If you live in one that requires it, the penalties can be steep if you don’t comply. So be sure to ask your insurance agent what your state requires.

Even if workers’ comp insurance isn’t required by law, your clients may still require you to carry it. That’s because in some states, if you don’t have a policy, they’ll have to cover you.

If you have a company-owned vehicle, you’d need to buy commercial auto insurance. However, as an independent contractor, it’s more likely that you drive your personal vehicle for work.

Should you get into an accident in your personal car while on business, your personal auto policy will probably only cover the damage to your vehicle.

To protect you from lawsuits over bodily injury or property damage liability, you can look at hired and non-owned auto insurance (HNOA) to protect you if someone sues over injuries or other damages from an accident.

As an independent contractor, you face a variety of risks. That means you may need several types of coverage. Our expert agents can help you evaluate your needs and find the right insurance protection to fit your small business and your budget.