Key Takeaways
- Errors and omissions insurance pays out if someone makes a claim against your company about inadequate work or negligence that led to financial loss for a client.
- The coverage is also called professional liability insurance.
- E&O insurance costs about $735 a year, according to Insureon.
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What Is Errors and Omissions Insurance?
Errors and omissions (E&O) insurance is a form of liability insurance that covers your business against claims of mistakes in professional services, such as services that are late, never delivered or inaccurate. Small business insurance companies may also call this coverage professional liability insurance.
E&O Insurance Claim Examples
Here are some examples of E&O claims:
- A real estate agent fails to disclose key information about a home.
- A public relations firm’s strategy results in a PR disaster.
- A marketing consultant provides advice that results in lost revenue.
- A tax preparer makes an error that results in a penalty.
- A contractor fails to complete a project on time.
What Does Errors and Omissions Insurance Cover?
Errors and omissions insurance, also called professional liability insurance, covers errors and omissions in professional work, as well as other mistakes, including:
- Inaccurate advice. This includes inaccurate advice or guidance that caused your client financial harm, such as a financial consultant who provides inaccurate advice that leads to lost revenue.
- Misrepresentation. This includes false or misleading statements, such as a real estate agent who makes a statement about a property that is misleading.
- Negligence. This includes a failure to use reasonable care. For example, a website designer who creates a website for a client that has security gaps that results in a data breach.
- Violation of good faith and fair dealing. Every contract has an implied duty that the parties involved will not prevent another party’s right to receive the benefits of the contract.
If your business gets hit with an errors and omissions claim, you could be facing legal defense costs, including court costs and attorney fees, and paying any settlements or court judgments.
Depending on the claim, you could face disciplinary hearings from a regulatory or licensing board. As you defend yourself against an errors and omissions lawsuit, you could also incur a loss of earnings for your time spent in court and on depositions. Errors and omissions insurance helps pay for all these costs.
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What Does Errors and Omissions Not Cover?
Common exclusions, issues not covered, for errors and omissions insurance include:
- Bodily injury or property damage caused by your business. For these claims, you would need a business liability insurance policy.
- Data breaches. These would be covered by cyber liability insurance.
- Employment practices, including wrongful termination or harassmen. You would need employment practices liability insurance to cover these costs.
- False advertising.
- Illegal acts, including fraud.
- Patents and trade secrets that you’ve taken without permission..
- Personally identifiable information that gets lost or stolen from your company. A cyber liability policy would cover these costs.
- Employees’ work-related illnesses and injuries fall under workers’ compensation insurance.
Who Needs E&O Insurance?
You will have to buy errors and omissions insurance in certain states and where licensing boards require it. For example, more than 10 states require real estate agents to show proof of errors and omissions coverage before they receive their real estate licenses.
In addition to real estate agents, here is a roundup of the types of businesses that can benefit from professional liability insurance.
- Accountants
- Advertising agencies
- Consultants
- Counselors
- Financial advisors
- Engineers
- Graphic designers
- Hair salons and barber shops
- Healthcare professionals
- Insurance agents
- Interior decorators
- Management and business consultants
- Marketing professionals
- Personal trainers
- Pet services like pet groomers and veterinarians
- Real estate agents
- Tax preparers
- Technology professionals
- Travel agents
Here are some examples of when E&O insurance can be beneficial:
- A financial planner who offers advice that results in a client facing a huge tax bill.
- A lawyer mistakenly doesn’t file a complaint on time and a client suffers a financial loss.
- A real estate professional doesn’t provide vital information about a home to a homebuyer.
Is Errors and Omissions Insurance Required?
E&O insurance may be required for certain professions, such as attorneys, medical professions, contractors and real estate agents. These requirements vary by state and profession.
Even if E&O insurance is not required in your state, it’s still worth considering. Without this coverage you could face hefty out-of-pocket expenses if you get hit with a lawsuit for a mistake.
How Much Does Errors and Omissions Insurance Cost?
Errors and omissions insurance cost an average of $61 a month, according to Insureon. That’s $735 a year. The exact cost varies by profession and risk.
Slightly less than a third (32%) of small business owners pay less than $50 per month, while 39% pay between $50 to $100 per month, and 29% pay more than $100 per month, according to Insureon.
Monthly Cost of E&O Insurance by Profession
| Profession | E&O cost per month by industry |
|---|---|
| Building designer | $142 |
| Media and advertising | $72 |
| IT/technology | $67 |
| Real estate | $57 |
| Consulting | $56 |
| Finance and accounting | $42 |
| Insurance professionals | $42 |
| Professional services | $42 |
The cost of errors and omissions insurance is based on factors, such as:
- The size of the business and number of employees.
- The revenue of the business.
- The industry and the type of risks that you face.
- Business location and state.
- The past claims history of the business.
- The E&O coverage limits that you choose.
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Where to Get an Errors and Omissions Insurance Quote
If you already have a business owners policy (BOP), you can typically add errors and omissions insurance to your BOP. That’s usually cheaper than buying a stand-alone policy. But you can also compare errors and omissions insurance quotes among multiple companies. Here are companies from our list of the best small business insurance companies that sell E&O insurance.
How to File an E&O Insurance Claim
Most E&O policies specify how quickly you’ll need to notify your insurance company that you’re facing a lawsuit or claim against you. Here’s how to file an E&O claim.
Collect Documents and Jot Down Notes for the Claim
Organize documents involved in the case right away. Recall any correspondence related to the issue, including face-to-face meetings, phone calls and emails.
It’s typically best to not communicate with the plaintiff. Don’t admit guilt without consulting your lawyer.
Contact Your Insurance Company
Contact your insurance agent as soon as you hear about the lawsuit so it can begin investigating and resolving the claim. Use a detailed log to keep track of your communications with the insurance company and agent.
Contact a Lawyer
Your insurance company may offer you lawyers who specialize in your issue. Contact a lawyer as soon as possible. Potential actions include:
- Answering the claim in court.
- Requesting dismissal.
- Negotiating a settlement.
- Going to trial.
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Technology E&O Insurance vs. Cyber Liability Insurance
Cyber liability insurance helps when a business experiences cyberattacks and data breaches. Let’s say private customer information is stolen from your company’s database. If the customer files a claim against your company, cyber liability insurance will help pay for the costs.
By contrast, technology errors and omissions insurance would cover instances of negligence and product failures as well as errors and omissions made by your technology company.
Technology E&O coverage kicks in when you have had a hand in what went wrong for a customer. Cyber liability insurance can be used if your company is attacked by an outsider through a data breach or cyberattack.
Errors and Omissions Insurance Frequently Asked Questions
Is errors and omissions insurance the same as professional indemnity?
Professional indemnity is another name for errors and omissions insurance. It’s a type of small business insurance that covers your legal costs for claims of professional mistakes (such as inaccurate advice), even if the claims have no merit. Another name for this type of business insurance is professional liability insurance.
What if my errors and omissions policy expires?
If your errors and omissions policy expires, claims made against your business for professional mistakes after your policy’s expiration date may not be covered. That means you would have to pay any legal costs, judgments or settlements out of pocket.
Some E&O policies have an extended reporting period that covers claims filed within a certain time frame after your policy expires, such as 30 to 60 days. You won’t be covered if a claim is filed after the extended reporting period.
What does errors and omissions insurance cover in real estate?
Errors and omissions insurance is a type of small business insurance that covers claims of professional mistakes for real estate agents and brokers, even if the claim has no merit. This includes accusations of negligence and failure to deliver promised services.
For example, if a client claims you failed to disclose termite damage, they could sue your real estate business. Your E&O insurance policy would cover your legal costs.