Errors and Omissions Insurance | Professional Liability Insurance

Many people pay experienced professionals to give them trustworthy advice on matters such as buying a home, legal issues, tax preparation, investing, and more. Most of the time, these professionals give sound advice that can help them with their goals. But what happens if they give inaccurate or faulty information to a client? 

Besides potentially costing money, this could result in a lawsuit. Fortunately, for professionals who are brought into those lawsuits, errors & omissions insurance, or E&O insurance, can cover them, and a local independent insurance agent can help you find the right policy. But first, here's a closer look at E&O coverage and why it's necessary for professionals who offer services to the public. 

What Is Errors and Omissions Insurance?

Errors and omissions insurance, also known as professional liability insurance, is a critical type of small business insurance designed to protect against the cost of claims related to errors, omissions, and negligence caused by your business. 

A customer or client may claim that the professional services you offered caused them injury or another type of harm, and they might file a lawsuit against you for it. E&O coverage or professional liability coverage can help reimburse your business for the client's damages as well as pay for your legal defense costs and settlement expenses.

Common claims professional liability insurance covers include:

Businesses that offer professional advice or counsel to members of the public must have this protection. Additionally, any business that offers another type of professional service that could cause injury or harm to their customers or clients, such as massage therapy, needs a special type of professional liability insurance known as malpractice insurance.

Professional liability insurance is different from general liability insurance, which is designed to cover third-party claims of bodily injury or personal property damage caused by your business. General liability would cover the costs of a customer's slip and fall injury on your business's wet or slick floor, but it wouldn't cover a client's claim that your professional advice was inaccurate and cost them money. General liability also wouldn't cover a client's injury claim if a massage or physical therapy session went wrong.

Who Needs Errors and Omissions Insurance? 

Businesses that offer any type of professional advice or provide services to clients are good candidates for E&O insurance. Typically, insurance companies have specific errors and omissions coverage forms that apply to each industry. 

Common professions that use errors and omissions coverage include:

If your business is based on your professional expertise and you’re providing advice and recommendations to clients, be sure to speak with an independent insurance agent about errors and omissions insurance coverage. Likewise, if your business offers any type of professional service to the public that could result in harm, ask about getting E&O coverage today.

Is Errors and Omissions Insurance Required? 

Yes, some clients may require your business to have errors and omissions insurance coverage before they conduct business with you. They want to know that if there’s a claim related to your professional services or advice, both you and they are protected financially since your insurance will pay for the claim. 

The client doesn’t want you to sue them if you’re brought into a lawsuit, so having the proper insurance coverage takes care of those possibilities and allows all parties to focus on the job at hand. 

You may be asking, "Do I need E&O insurance for my business?" Professionals in certain industries are often required by law to have errors and omissions insurance before they can obtain the necessary licensing to begin practicing. 

For example, doctors are required to get a specific type of E&O coverage known as medical malpractice insurance. Attorneys, consultants, and counselors are just a few other types of professionals who are also often required to have coverage. Be sure to research your state's E&O insurance requirements for your industry. 

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How Errors and Omissions Insurance Protects High-Risk Professionals

Errors and omissions insurance protects businesses that offer professional advice or services where a mistake could potentially cost a client a lot of money or another type of harm, like bodily injury. These types of claims could happen in a wide variety of professions. Here are some of the most common. 

Insurance agents

Insurance agents are responsible for making sure their clients have adequate insurance coverage. Ideally, insurance agents speak with their clients about their financial assets, explain what type of claims could happen to them, and then offer the appropriate coverage. Unfortunately, sometimes things go awry. 

Clients can sue insurance agents if they feel they weren’t offered high enough insurance limits. This typically happens after a claim when the payout is higher than the client's insurance coverage, meaning the client has to pay out of pocket.

Real estate agents

Real estate agents are among the most common professions that buy errors and omissions insurance due to the high potential for claims. Many insurance companies are even hesitant to offer errors and omissions insurance for realtors, while others may charge higher rates. 

Real estate agents make recommendations to their clients on the types of houses or buildings they can buy. They show them the buildings and ultimately broker the sales. If a client then has a problem with the house, even if it has nothing to do with the realtor, the client can sue the real estate agent for misleading them about the condition of the house or building. 

It doesn’t matter if the claim is valid or if the real estate agent was actually at fault. The client can still sue and incur legal fees and defense costs for the real estate agent. Errors and omissions insurance would pay for these costs, and the insurance company would fight this lawsuit on the realtor’s behalf. 

Financial advisers

Financial advisers recommend where clients should put their money, whether in a retirement account like an IRA, saving for their children’s college education, or a personal investment account. 

Most financial advisers have clients sign disclaimers stating that the advisers aren’t responsible for the ups and downs of the market and that anything can happen with investment money. While these disclaimers do provide some form of protection for financial advisers, they don’t necessarily prevent lawsuits from being brought against them. 

If a client loses thousands of dollars or more because their mutual funds tanked and they are out of retirement money, chances are pretty good that they will sue. A financial adviser's errors and omissions insurance policy can cover this risk. 

Tax preparers and accountants

Tax preparers and accountants also handle people’s hard-earned money. While they may make fewer financial recommendations than financial advisers, they are still responsible for ensuring the client’s taxes are properly paid. If there’s a mistake and potentially an audit by the IRS, the client will likely be unhappy and may sue the accountant. 

A tax preparer or accountant without errors and omissions insurance might owe a client a lot of money if they make a mistake, potentially putting them out of business. 

IT professionals

IT professionals could also be at risk of E&O claims due to the increase in the number of cyberattacks experienced by businesses across the country. Businesses trust IT professionals to adequately protect their networks, online capabilities, and even their clients’ personal and financial information. 

If a business suffers a cyberattack and is responsible for paying for the damage, which could be in the tens of thousands of dollars or more, they could sue the IT professional for not sufficiently protecting them. Hopefully, the business would also have cyber liability insurance to help fully cover the cost of the cyberattack and the resulting lawsuit.

Types of Errors and Omissions Insurance Coverage

There are two main types of professional liability insurance to choose from:

• Claims-made policies: This type of E&O coverage requires claims to be reported and for the incident to have occurred during the policy period.
• Occurrence policies: This type of E&O coverage protects a business against incidents that occurred during the policy period, regardless of when a claim is filed.

In general, occurrence-based policies offer broader coverage for businesses than claims-made policies. However, you can also purchase "tail coverage" to extend the coverage provided by a claims-made policy indefinitely. 

You can purchase tail coverage after the policy has been terminated. An independent insurance agent can help you determine which type of professional liability policy is right for your business.

What Does Errors and Omissions Insurance Cover?

Errors and omissions insurance covers your business against liability claims related to professional negligence, errors, and omissions from the work you performed, and/or malpractice of your professional services. It covers claims that are a direct result of your professional work. Here are some examples of covered E&O insurance claims.

Make sure your business is equipped with all the E&O insurance coverage it needs to protect against these claims and more by working with an independent insurance agent.

What E&O Insurance Doesn't Cover

An errors and omissions insurance policy isn’t designed to cover your business for everything. You can get coverage for the things that an E&O policy doesn’t cover by buying additional business insurance policies. 

However, it's important to first be aware that professional liability insurance typically won't cover any of the following claims:

E&O insurance also won't cover intentional harm to clients or other third parties. An independent insurance agent can help you review all of your specific E&O insurance policy's coverage exclusions. 

How Much Does Errors and Omissions Insurance Cost?

Small businesses pay an average of $82 per month or $984 per year for professional liability insurance. However, the cost of your business's policy can vary depending on several factors, including:

The cost of E&O coverage can range from $25 to $193 monthly, depending on these factors and others. You might be able to reduce your premium rates by bundling your E&O coverage with another policy from the same insurer. An independent insurance agent can also help you find discounts and savings on affordable professional liability insurance in your area. 

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How to Choose the Right Errors and Omissions Insurance Policy

Since errors and omissions insurance is a specialized policy, it’s strongly advised that you get the help of an independent insurance agent before buying your policy. They’ll be able to make recommendations about whether your business needs an E&O policy and can look at your existing commercial insurance package to determine which company is best for you. 

A local independent insurance agent can also fully explain what errors and omissions insurance covers your business for and how you can take steps to prevent E&O claims. Each profession is different and faces different E&O risks, so it’s important to have a trusted adviser who knows the ins and outs of commercial insurance to help protect your business.  

Additionally, your agent has access to several E&O insurance providers, so they're free to shop and compare policies and rates for your business. They'll help you find a policy that offers the right coverage limits and exclusions. Your agent can also help you review your policy's terms so you understand exactly how your coverage works.

How to File an E&O Insurance Claim

If you need to file an E&O insurance claim for your business, an independent insurance agent can assist you. Document the incident as thoroughly as possible, then contact your agent with the details. 

They can file the claim directly through your insurance company for you and keep you updated through every step of the process. Keep in mind that with every claim your business files, your premium rates are likely to increase.

Here's How an Independent Insurance Agent Can Help

When you're ready to get your business set up with the right professional liability or errors and omissions insurance, no one's better equipped to help than a local independent insurance agent. These agents have access to multiple E&O insurance companies, so they're easily able to find the best deal for your business. And down the road, your agent can help you file business insurance claims and update your coverage when necessary.

FAQs About Errors and Omissions Insurance