Orlando Harmon
Errors and omissions insurance (E&O) is a type of professional liability insurance that protects businesses and their employees against claims of negligence, malpractice, mistakes, or failure to provide promised services. While E&O insurance covers legal fees and settlement costs, it does not cover all types of claims, such as property damage, bodily injury, employment practices, or illegal acts. The cost of E&O insurance varies depending on factors like business size, location, and claims history, and certain states and industries may require businesses to carry this type of insurance.
| Characteristics | Values |
|---|---|
| Other names | Professional liability insurance, malpractice insurance |
| What it covers | Claims against a business for negligence, malpractice, mistakes, faulty advice, failure to meet deadlines or fulfill contract terms |
| What it doesn't cover | Property damage, bodily injury, workplace injuries, data breaches, intellectual property violations, criminal acts, employment practices, illegal acts, trade secrets taken without permission |
| Who needs it | Businesses that offer a professional service or advice to clients, including insurance agents, doctors, lawyers, wedding planners, financial advisors, real estate agents |
| Cost | Varies depending on business size, claims history, location, coverage limits, and risk |
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What You'll Learn
What does errors and omissions insurance cover?
Errors and omissions (E&O) insurance, also known as professional liability coverage, protects businesses and their employees against claims related to mistakes or negligence. It covers claims against a business for mistakes made while providing a professional service or advice. It reimburses the costs of legal fees, damages, and financial settlements related to claims of negligence, malpractice, errors, or omissions.
E&O insurance covers claims by clients for negligence, mistakes, faulty advice, or failure to provide the promised results. It also covers claims of failure to do work, meet a deadline, or otherwise fulfill contract terms. It is designed to protect businesses against claims that their professional advice or services caused a customer financial harm due to actual or alleged mistakes or a failure to perform a service.
E&O insurance does not cover all types of claims. It does not cover claims for property damage, bodily injury, workplace injuries, data breaches, intellectual property violations, or criminal acts such as fraud. It also does not cover employment practices such as wrongful termination or harassment, illegal acts or purposeful wrongdoing, or patents and trade secrets taken without permission.
Any business that offers professional services or advice might need E&O insurance. Examples include insurance agents, doctors, lawyers, wedding planners, and financial advisors. The average premium for E&O coverage for a small business is about $735 a year. The cost of E&O insurance varies depending on factors such as the size of the business, its claim history, and the industry it operates in.
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What doesn't it cover?
Errors and omissions (E&O) insurance, also known as professional liability coverage, protects companies and their employees against claims related to mistakes or negligence. However, it's important to note that E&O insurance doesn't cover every type of liability claim. Here are the key areas that E&O insurance typically does not cover:
Bodily Injury and Property Damage
E&O insurance does not cover claims related to bodily injury or property damage caused by the insured business. For instance, if a client suffers an injury on your business premises or their property is damaged due to your business operations, E&O insurance will not provide coverage. In such cases, a general liability insurance policy would be more appropriate.
Workplace Injuries
Injuries or illnesses sustained by employees in the workplace are also not covered by E&O insurance. Instead, businesses would need to have a separate workers' compensation insurance policy in place to cover such claims and provide benefits to their employees during their recovery.
Data Breaches and Intellectual Property Violations
Claims arising from data breaches or intellectual property violations are not typically covered by E&O insurance. As a business, it is important to have separate cybersecurity insurance or data breach insurance to protect against these modern risks.
Criminal Acts and Fraud
E&O insurance does not cover claims arising from criminal acts, fraud, or intentional wrongdoing. This includes situations where a business has intentionally broken the law or deceived its customers or clients. Standard insurance policies generally exclude coverage for illegal activities.
Vehicle Incidents
E&O insurance does not cover incidents involving business vehicles. Commercial auto insurance is specifically designed to cover claims related to work vehicles, including accidents, property damage, and injuries caused by these vehicles.
Employment Claims
Claims related to employment practices, such as discrimination, harassment, or wrongful termination, are not covered by E&O insurance. Employment Practices Liability Insurance (EPLI) is a separate type of insurance that businesses can purchase to protect themselves against these types of claims.
It is important to remember that E&O insurance policies can vary, and businesses should carefully review their specific policy documents to understand what is covered and what is not. Additionally, certain industries or states may have unique requirements for E&O insurance coverage.
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Who needs this insurance?
Errors and omissions (E&O) insurance is a type of professional liability insurance that covers claims against a business for negligence, malpractice, and mistakes. It is designed to protect businesses and their employees from financial loss and legal costs in the event of a lawsuit arising from unsatisfactory work.
Any business that offers professional advice or services to clients should consider E&O insurance. This includes but is not limited to:
- Insurance agents
- Doctors
- Lawyers
- Wedding planners
- Financial advisors
- Realtors
- Tax preparers
- IT professionals
- Architects
- Consultants
- Engineers
- Accountants and CPAs
The cost of E&O insurance varies depending on the industry, business size, location, claims history, and the types of clients dealt with. For example, a building design company will likely pay more than a hair salon or massage therapist. Small businesses can typically expect to pay an average premium of around $735 per year, while some small business customers pay less than $50 per month for coverage.
It's important to note that E&O insurance does not cover all types of claims. It typically excludes claims related to customer injury, property damage, workplace injuries, data breaches, intellectual property violations, and criminal acts such as fraud. To determine if E&O insurance is necessary and to understand the specific coverage required, businesses should consult with insurance professionals or obtain quotes from insurance providers.
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How much does it cost?
The cost of errors and omissions insurance (also known as professional liability insurance or E&O coverage) varies depending on several factors. There is no set price, and it differs from company to company. The average premium for E&O coverage for a small business is about $735 a year, with most policyholders paying between $50 and $100 per month. However, the national median monthly cost for new Progressive customers in 2024 was $42, with an average rate of $66 per month. TechInsurance customers pay an average of $61 per month. The cost of E&O insurance typically depends on the following factors:
- Business size and number of employees: The more employees a business has, the higher the risks and opportunities for a client to file a lawsuit. Therefore, businesses with more employees can expect to pay more for E&O insurance.
- Claims history: Businesses with a history of lawsuits or claims will likely have higher insurance premiums than those without a claims history. Insurance companies view companies with past claims as riskier to insure.
- Location: The cost of E&O insurance varies by location due to different risk levels and regulations. Some states have higher minimum coverage requirements, which can increase the cost. Additionally, areas with a higher number of claims or stricter laws tend to have higher insurance prices.
- Industry and risk: The industry a business operates in and the types of risks it faces influence the cost of E&O insurance. For example, a construction company may have a higher errors and omissions rate due to the potential for property damage or injury claims. Similarly, professions like lawyers and accountants often pay more for E&O insurance because of their potential for costly mistakes.
- Policy limits: Higher policy limits result in higher costs, as they provide more protection and cover more expensive claims. Conversely, lower limits reduce the premium but offer less coverage in the event of a claim.
- Deductible: Policies with high deductibles cost less upfront, but the insured must pay a higher amount before the insurance company covers a loss. Most companies choose a deductible of $2,500 for E&O insurance.
It is important to note that E&O insurance costs can also depend on other factors, such as employee training, contracts, and business operations. Additionally, businesses can save on E&O insurance costs by choosing higher deductibles, taking advantage of discounts, and ensuring coverage with no policy gaps.
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When is it required?
Errors and omissions (E&O) insurance is typically required for businesses that offer professional services or advice to clients. This includes small businesses and independent contractors that have direct client relationships. Occupations that commonly require E&O insurance include:
- Insurance agents
- Doctors
- Lawyers
- Wedding planners
- Financial advisors
- Tax preparers
- Accountants
- Real estate professionals
- Consultants
Some clients may require proof of E&O coverage before signing contracts, particularly when dealing with government entities and larger companies. Additionally, certain states in the US mandate that businesses offering professional advice or services purchase E&O coverage. While it may not be legally required in all industries, it is still highly recommended for businesses to protect themselves from potential financial losses.
E&O insurance is designed to safeguard businesses from claims arising from negligence, malpractice, errors, omissions, or faulty advice. It covers the legal fees, damages, and settlements resulting from such claims. Without this coverage, businesses would have to pay for these expenses out of pocket, which could be financially devastating, especially for smaller companies.
It's important to note that E&O insurance does not cover all types of claims. For instance, it does not protect against customer injury, property damage, incidents involving business vehicles, damage to business property, employee injury, or employment-related claims. Separate insurance policies are typically needed for these scenarios.
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Frequently asked questions
Errors and omissions insurance, also known as E&O insurance and professional liability insurance, helps protect your business from lawsuits that claim you made a mistake in your professional services.
Errors and omissions insurance covers legal expenses if you're sued over the quality of your work. It covers attorney fees, court costs, and administrative costs.
Businesses that offer a professional service or give advice to clients need errors and omissions insurance. Examples include insurance agents, doctors, lawyers, wedding planners, and financial advisors.
