Errors and omissions insurance

Errors and omission 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 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 agrees to implement a multi-component cybersecurity program for a client, but takes longer than expected, then E&O insurance would provide financial protection if the client sues over the missed deadline. Or suppose a SaaS company's service goes down for two days, clients lose out on transactions, and sue your company to recoup their losses. E&O would help pay for attorney's fees and any other legal 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. Additionally, some customers may require proof of E&O insurance before they'll work with your agency. It can also be required, depending on the state your business operates in and the type of work you do.

Should an insurance agent inadequately provide auto insurance coverage for a client, they'll likely sue the insurance agent if they find themselves trying to make a claim on their car and see 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, such as a miscalculation or unfounded advice, can have huge negative consequences that can impact the business or even result in 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.

Real estate agents and brokers, depending on their state of operation, are required to carry errors and omissions insurance. E&O helps cover lawsuits related to failure to close, mismanagement, misrepresentation, disclosure errors, or other professional issues. In some cases, without proof of an E&O policy, some clients, buyers, or sellers may refuse to work with you.

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.

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.

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 your 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.