Errors and omissions insurance (also referred to as E&O insurance or professional liability insurance) helps protect your business if you make a mistake or a client accuses you of negligence or providing inaccurate information.
This article explains what errors & omissions insurance is, who needs it, what it covers (and doesn’t cover), how much it costs, and how to choose the right policy for your business.
What Is Errors & Omissions Insurance?
E&O insurance protects businesses from negligence claims and accusations of misrepresentation or providing false information. It can help pay for legal fees and settlement costs if you are found guilty of a claim.
For example, let’s say you run a publishing company but fail to publish a client’s book by its advertised release date. The author could take you to court for lost revenue due to the missed deadline. E&O insurance could help pay for the legal fees and damages.
Who Needs Errors and Omissions Insurance?
Anyone who provides a professional service should have errors and omissions insurance, including:
- Accountants
- Doctors
- Salons
- Mental health counselors
- Insurance agents
- Lawyers
- Property managers
- Wedding planners
- Financial advisors
- Realtors
- Occupational therapists
- Architects
- Freelancers
- Consultants
- Engineers
- Marketing agencies
- Coaches
- Publishing companies
- Veterinarians
Some states require professionals in specific industries (such as real estate) to have E&O insurance before they can take on clients.
Professionals
Anyone can make a mistake, even experts, which is why it is essential for professionals who sell their services to have errors and omissions insurance.
Small Business Owners
The legal costs associated with a defending lawsuit can potentially bankrupt a small business. Having E&O insurance can help protect small business owners from paying out of pocket for legal and settlement costs.
Freelancers and Independent Contractors
While freelancers and independent contractors don’t have to worry about double-checking the accuracy of an employee’s work, they can still make a mistake that can lead to claims of negligence or provide inaccurate information. E&O insurance can help shield sole proprietors from havingto pay the full cost of legal fees or settlements.
What Is Covered by Errors and Omissions Insurance?
Errors and omissions insurance can help cover legal costs for defending lawsuits, any settlements you might owe if you are found to be at fault, and damages and expenses.
Professional Services
E&O insurance can help cover costs associated with business mistakes such as missed deadlines, providing inaccurate information, or breach of contract (failure to deliver promised results).
Negligence Claims
If a client or third party accuses you of negligent behavior that caused them harm, E&O insurance can help pay for legal and settlement costs.
Intellectual Property Claims
E&O insurance can help cover damages and expenses if you are accused of copyright infringement (using someone else’s work without authorization) or other intellectual property rights violations.
What Errors and Omissions Insurance Doesn’t Cover
Error and omission insurance typically doesn’t cover any of the following:
- Criminal prosecution (illegal acts, such as if you intentionally mislead a client to make a sale)
- Bodily injury (general liability insurance can help cover this)
- Property damage
- Data leaks (cyber liability or data breach insurance can help cover this)
- Employee injuries incurred at your workplace (workers’ compensation insurance can cover this)
- Discrimination claims made by employees (employment practices liability insurance can cover this)
- Temporary employees
- Intentional wrongdoing (such as false advertising)
Your errors and omissions policy must be in place when a claim is made for the insurance to cover the costs associated with the claim. If you let your policy lapse, you generally won’t have protection, although some policies are retroactive and will cover claims going back to the point of time stated in your policy.
Errors and Omissions Insurance Cost
So now that you understand what E&O insurance is, who needs it, and what it covers, how much does errors and omissions insurance cost?
The cost of E and O insurance depends on several factors, including your:
- Industry
- Coverage amount
- Liability claims history
- Location
- Number of employees
Businesses in risky industries (such as financial advisors that deal with confidential information and give investment advice based on trends) will likely pay a higher E & O insurance cost, as will those that want more coverage, have a history of claims against them, or have a lot of employees. The price of errors and omissions insurance can vary depending on your state.
On the other hand, your error and omission insurance cost may be reduced if you don’t have any previous liability claims against your company or are a sole proprietor.
The cost of E&O insurance depends on your unique needs and your provider. For example, Next provides E&O insurance starting at $19/month, the average cost of E&O insurance per employee through The Hartford is $62.50/month, and Progressive’s E&O insurance costs an average of $57/month.
How to Choose an Errors and Omissions Insurance Policy
When choosing an errors and omissions insurance policy there are a few factors to keep in mind. First, you should assess your risks. Does your business offer professional services or give clients advice? Do you use contracts or work in a high-risk industry? Contracts are susceptible to errors, while mistakes in higher-risk industries (such as construction) can cause more expensive damages.
Next, you will need to choose your coverage limits. The higher your risks, the more coverage you will likely want.
Once you have an understanding of the type of coverage you want, you can compare policies–what they cover and exclude–and providers. Remember, you may pay a higher premium for more coverage, but the cost of your premium will likely be far less than the amount you would have to pay to defend yourself in court or for damages.
Conclusion
Errors and omissions insurance (also known as E&O or professional liability insurance) helps protect your business from having to pay the full cost of defending lawsuits against claims of negligence or inaccurate information and can help pay for settlements and damages.
Anyone who offers professional services or provides advice for a living–including small business owners and freelancers–should consider purchasing errors and omissions insurance. You should have E&O insurance if you are legally required to do so.
Policies vary based on your provider, but E&O insurance typically covers legal costs, settlements and judgments, and expenses for violating intellectual property rights. Errors and omissions insurance doesn’t usually cover intentional wrongdoing, bodily injury, property damage, data leaks, or employee injuries.
The cost of E&O insurance depends on your industry, number of employees, claims history, location, and the amount of coverage you want.
To choose the right E&O insurance policy, you should consider your risks and desired coverage limits, and then compare policies and providers.
FAQs
What is errors and omissions insurance best for?
An errors and omissions insurance policy is best for protecting your business from lawsuits and claims of negligence and providing misinformation.
