What does errors and omissions insurance cover?

Errors and omissions insurance protects companies against accusations of substandard work and professional negligence. If a dissatisfied client files a negligence lawsuit, it can pay your legal defense costs as well as the eventual judgment or settlement.

Example: An IT staffing firm supplies an employee to a large tech company for a role in database administration. The employee lacks the basic skills necessary to fulfill the role, but the company only finds this out after signing a contract. The tech company sues the staffing firm for negligence.

Coding errors and other mistakes can lead to a lawsuit if they cause a client to lose money. E&O coverage can pay your legal expenses from lawsuits stemming from errors and oversights.

Example: An app developer builds an Android app for a big tech company. After the app's release, it becomes clear that the app performs poorly on certain devices due to mistakes in the code. The tech company sues the app developer over the issue.

When a company misses an important deadline, it can mean lost profits for your client. E&O coverage can help pay for lawsuits over missed deadlines and project scope disputes.

Example: A web design company is tasked with building a new website for an e-commerce company. When the project takes longer to complete than promised, the e-commerce company sues the web design company over the potential lost profits.

When a company enters a contract with a client, it's hard to keep track of all the fine print. Sometimes projects go over budget or require more work than initially agreed upon.

If a breach of contract results in a lawsuit from the client, your E&O policy can help cover the legal expenses and resulting judgment or settlement.

Example: A computer repair shop signs a contract to maintain a business's laptops whenever they need updating or repairs. When a new Windows update comes out, the business expects the repair shop to purchase the update for all of their machines.

The shop refuses, saying that it couldn't be expected to pay for new operating systems for the laptops. The business sues the repair shop over breach of contract.

E&O insurance won’t protect your business if someone sues over damaged property. General liability insurance, included in a business owner’s policy (BOP), covers third-party lawsuits over property damage.

Example: An IT consultant borrows a client’s laptop and accidentally drops it, breaking the hard drive. When the client sues, the consultant’s general liability policy helps cover the resulting costs.

While E&O/professional liability insurance covers lawsuits over negligence and mistakes, it does not protect against criminal acts by employees. If an employee steals from a client, including via electronic transfer, fidelity bonds will reimburse the client.

Example: An employee at a cybersecurity firm builds a loophole into a security system that collects financial information and steals from a client. The firm’s fidelity bond reimburses the client once the theft is discovered.

E&O insurance by itself won't protect you if a client sues over a data breach – however, it's often bundled with cyber liability insurance in a package called tech E&O insurance.

Tech E&O can help pay for lawsuits from clients who blame your business for failing to prevent a cyberattack or data breach. If a provider doesn't offer this bundle, you may need to purchase cyber liability insurance as a standalone policy.

Example: The client of an IT consultant is affected by a data breach on a service that the consultant recommended. The client sues the consultant; tech E&O insurance covers the resulting legal costs and judgment.

Though E&O provides coverage for mistakes, it doesn’t cover client injuries. When an accident in your office affects a client or visitor, general liability insurance can help pay for medical bills or legal expenses if the person sues.

Example: A client slips on the freshly mopped floor at a computer repair shop. The shop’s general liability policy pays for the cost of the ambulance ride and emergency room visit.

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 agent.