Why Do You Need Errors and Omissions (E&O) Insurance?

Errors and Omissions Insurance, also referred to as E&O insurance or professional liability insurance, is a vital type of business insurance that provides coverage for expenses arising from professional mistakes, negligence, and malpractice. To learn more about this essential coverage, visit our comprehensive guide on business insurance.

If your business offers professional services in any capacity, it is crucial to consider obtaining this type of insurance coverage. The benefits are manifold. Not only does it safeguard your business, but it also ensures compliance with regulations, grants you peace of mind, and has the potential to save you significant amounts, ranging from thousands to millions of dollars.

What is errors and omissions insurance?

E&O insurance covers businesses from expenses following certain kinds of lawsuits against you.

If your business provides professional services to clients or customers, E&O insurance coverage can help you pay for claims of:

• Negligence
• Omissions
• Misrepresentation
• Inaccurate advice
• Violations of good faith
• Incorrect or erroneous services provided

Why do you need errors and omissions insurance?

Nobody wants to agree with the idea that they might one day make a professional mistake that costs someone else or another company significant money. However, mistakes do happen. Liability claims are expensive, and a company tanking a legitimate liability claim often incurs a damaged reputation and even might go out of business.

The three main reasons professionals need errors and omissions insurance are:

1. To pay for any lawsuits
2. To meet legal obligations
3. To maintain a good reputation and sense of legitimacy with clients

If you offer professional services, errors and omissions insurance is essential in preventing a professional mistake from costing you severely. It is very important to have adequate E&O insurance coverage to protect your business.

Without errors and omissions insurance, you could get sued for a devastating amount of money. While attorney fees will typically cost thousands or hundreds of thousands of dollars, the lawsuit itself could cost you over a million dollars. Add all the costs together, and your business could sink.

What expenses does E&O insurance cover?

E&O insurance provides insurance coverage for a variety of situations. If you need to pay any of the following costs, E&O insurance might be able to assist you.

Attorney expenses

Regardless of whether you are found liable for the claim against you, attorney expenses can be quite expensive. Errors and omissions insurance will generally cover the attorney and legal fees of the lawsuit.

Court costs

Errors and omissions insurance can help pay for your court expenses. If you find yourself needing legal representation, this insurance could potentially cover relevant court costs. Explore the benefits of errors and omissions insurance when it comes to your court needs. Get the coverage you need for potential court expenses with errors and omissions insurance.

Administrative costs

Errors and omissions insurance can provide coverage for these financial drains. Say goodbye to the hassle of paying administrative costs, as errors and omissions insurance can help alleviate the burden. Discover how errors and omissions insurance can cover your administrative expenses and improve your financial situation. Get peace of mind knowing that errors and omissions insurance can take care of your administrative costs.

Settlement fees

In cases where the plaintiff opts for an out-of-court settlement or if you are deemed at fault for a claim, errors and omissions insurance can step in to cover your settlement fees. Count on errors and omissions insurance to provide financial support when resolving legal matters through settlements. Ensure your settlement fees are taken care of with the assistance of errors and omissions insurance.

Judgment fees

If the court ends up finding you liable for losses, you might end up having to pay judgment fees. These can be extremely costly depending on the final judgment.

Occasionally, your business might also decide to skip the trial process and go straight to the judgment step. In this case, a judge will decide upon the judgment cost that you will need to pay. In this case, errors and omissions insurance policy can also help you cover judgment costs.

Errors and omissions insurance benefits

There are plenty of benefits that come with purchasing errors and omissions insurance for your company or individual business needs. It is highly advisable for those who provide professional services to have errors and omissions coverage. This is not only because judgments for claims like professional negligence can be extremely costly, but also because of several other factors.

Here are some of the best benefits of having errors and omissions insurance coverage.

• Mistakes and errors at work will generally be covered
• If you don’t meet a deadline or deliver a promised service, errors and insurance coverage can help you out
• If you don’t meet a specific standard of care, especially in the case of certain professions
• Breaches of contract: a violation of the terms of a binding contract (either oral or written)
• Your company will have peace of mind in case of an oversight or problem related to errors and omission claims

When does errors and omissions insurance provide coverage?

The kind of coverage you get may depend on what insurance company you choose to purchase the insurance product from. However, errors and omissions insurance generally covers similar things because it is a very common commercial insurance. More specifically, it is a common type of professional liability insurance that protects those who offer professional services.

Errors and omissions insurance coverage kicks in and provides coverage if there is a claim of professional negligence, inadequate work, or another error and omissions related claim made by one of your clients.

If you are a lawyer, insurance agent, accountant, doctor, wedding planner, or any other sort of professional service provider, errors and omissions insurance can provide coverage for you if you make a mistake or oversight during your line of work.

In general, here are the kinds of things that errors and omissions insurance will cover.

Professional negligence

This is a legal term referring to when a professional fails to provide the expected professional duties or obligations that they were hired to perform. Professional negligence can apply to any professional, such as a lawyer, accountant, financial advisor, realtor, architect, etc.

The professional needs to exercise “reasonable care” while providing their professional services, which means that they provide the same, reasonable standard of care that any other qualified professional in their profession, under similar circumstances, would provide.

Failure to deliver or meet deadlines

If a professional is unable to provide the expected services as per the agreed upon contract or terms, they may need to be responsible for certain losses or fees. Errors and omissions insurance can generally help out with such instances.

Errors, mistakes, and oversights

Any profession that includes professional services offered to clients can have errors, mistakes, or oversights. Errors and omissions will cover expenses such as legal fees if you make a mistake that hurts your clients.

Breaches of contract

Errors and omissions insurance may cover breaches of contract. Remember that E&O insurance does NOT provide any coverage if there is criminal activity.

How can errors and omissions insurance help you?

Having errors and omissions insurance coverage is a great way to protect you from any mistakes or negligence you may make during your work.

Errors and omissions insurance is great financial protection for any party that might have professional liability risks. It can help you mitigate the consequences of these risks by providing you with potentially massive amounts of financial assistance.

In case you ever get a professional liability claim filed against you, errors and omissions coverage can come in a pinch and help you out with administrative costs, court costs, judgment fees, legal expenses, and more. Like all other sorts of commercial insurance, errors and omissions insurance helps keep your business from incurring too many losses and helps your business stay afloat amidst potential legal trouble.

How does a lawsuit affect your business?

A lawsuit that arises from negligent actions or poorly performed work can be very costly for a business. When a business or individual fails to meet the standards of a profession or breaches a contract somehow, customers and clients can get very upset. They might also incur heavy losses because of your mistakes or oversights.

How to decide if you need errors and omissions insurance

Business, individuals, and any party that offers professional services should consider getting errors and omissions insurance.

Working in an industry that sees expensive liability claims will typically result in a larger need for errors and omissions insurance. It is a good idea to research and see if your particular industry is prone to expensive professional liability claims.

For example, medical malpractice claims can be devastating for a medical provider. Errors and omissions insurance will be able to help out with costs such as legal expenses.

Companies in the following industries are generally recommended to purchase errors and omissions insurance:

• Insurance
• Finance
• Medical professionals
• Maintenance companies
• Contractors

In some cases, you might actually be required by regulations to have errors and omissions insurance. The Financial Industry Regulatory Authority (FINRA) might require you to have E&O, for example. It is always important to comply with minimum insurance requirements within your industry.

What does errors and omissions insurance NOT cover?

Like essentially all insurance, there are exceptional cases where the insurance company will reject your insurance claim and not cover your expenses.

If there is proof of criminal activities, it is important to note that errors and omissions insurance does not cover criminal activity. In general if you want insurance for crimes committed by your business’ employees, you should consider purchasing a good commercial crime insurance policy.

In addition, errors and omissions insurance usually won’t cover anything that is already covered by other traditional forms of insurance. If you are concerned about overlapping coverage or a gap in coverage, an insurance expert can help you out.

Errors and omissions example case

Let’s say that Company A is a financial services and advising company. Their employees provide reasonable financial advice to their clients. However, one of their advisor fails to inform a client of the high risks of a certain financial decision, and the client ends up with severe financial losses.

The client may end up suing the entire company for being professionally negligent and failing to provide the services as per agreed upon in the contract. The case seems like it will go to court because the client does not want to settle outside of court. It will be a lengthy court process, for which Company A needs to hire a reputable and experienced attorney. This results in very high legal fees.

Whether the company is found liable or not, errors and omissions insurance should kick in and provide coverage for legal fees and other relevant expenses.

E&O Insurance FAQ

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What is E&O insurance?

Errors and omissions insurance helps cover legal fees and damages if a client sues a professional for a loss due to an error or omission made.

Who needs E&O insurance?

Any professional who provides services to clients should have adequate errors and omissions insurance.

Regulatory bodies require employees in certain professions to have errors and omissions coverage.

What claims does E&O cover?

Errors and omissions insurance usually covers you in case you fail to meet a deadline, make a professional oversight or mistake, commit professional negligence, or omit something that is vital to a client’s success.

What fees does E&O cover?

Errors and omissions insurance usually covers:

• Attorney expenses
• Judgment fees
• Settlement fees
• Court costs

5. How much does E&O insurance cost?

Typically, errors and omissions insurance should cost not much more than $1000 per employee in a year. The cost will depend on factors such as a business’ claims history, company size, and business operations.

Is E&O insurance the same as liability insurance?

Yes, errors and omissions insurance is also known as professional liability insurance.

E&O insurance is NOT general liability insurance.

Does E&O insurance have deductibles?

Yes. Like most insurance, errors and omissions insurance has deductibles you might need to meet before the insurance coverage will kick in. There are different kinds of deductibles depending on your needs and chosen policy.