What Is Errors and Omissions Insurance?

June 15, 2023
An accountant meets with her clients.

Operating a business is always a risk, and if you are in the business of providing professional advice and services, some errors could cost your business. Having errors and omissions (E&O) insurance could help protect the business you have worked so hard to build. Consider this scenario. A real estate agent sells someone a house. The buyer later finds out that the house’s foundation is sinking and fracturing and blames the real estate agent for missing this crucial detail. E&O insurance could help the real estate agent pay for the costs of alleged losses, attorney’s fees, and a settlement or a judgment.

Companies that primarily provide services or give professional advice to clients could find themselves in a similar situation. How can professionals protect themselves in this situation? One solution to consider is E&O insurance.

Read on to learn more about E&O insurance, how it works, and how much it costs.

What Does Errors and Omissions Insurance Typically Cover?

E&O insurance, also referred to as professional liability insurance, can help provide financial protection for companies and professionals if a client alleges their work is inadequate or they committed a negligent act.

E&O insurance can help an insured pay for the following expenses, subject to policy limits:

  • Judgments: Monetary damages awarded to the plaintiff.
  • Attorney fees: Costs of hiring an attorney to defend the insured.
  • Court costs: Costs such as filing fees.
  • Settlements: Claim settled out of court.

E&O insurance can cover the costs arising from various service-based business liabilities, including:

  • Negligence. Professional negligence occurs when a professional breaches their duty of care or fails to perform their services to the required standards of their profession.
  • Errors. Losses resulting from errors, mistakes, or oversight in performing a service may be covered.
  • Omissions. Losses resulting from a professional leaving out important information that a client needs to know may be covered under E&O insurance policy.
  • Misrepresentation. A professional that presents themselves as having experience in an industry when they don’t, may be considered a misrepresentation.
  • Inaccurate advice. A client who believes they have been financially harmed by a professional’s advice can bring a claim against the professional.

What Does Errors and Omissions Insurance Typically Not Cover?

E&O insurance typically doesn’t cover the following:

  • Fraudulent, criminal or dishonest acts
  • False advertising claims
  • Injury or property damage claims (typically covered under a general liability insurance policy) 
  • Claims related to employment practices
  • Identity theft claims

Is E&O Insurance Required?

Some states may require E&O insurance for certain licensed professionals. For example, in some states, real estate agents must have E&O insurance to cover acts requiring a license. Ultimately, whether a professional is required to maintain an E&O insurance coverage depends on the industry and applicable state law.

Even if E&O insurance isn’t required, it is still good idea to consider obtaining E&O insurance coverage for any company or professional who offers consulting, advisory, or other services to clients.

How Much Does E&O Insurance Cost? 

Like other business insurance costs, the exact cost of an E&O insurance policy will depend on a variety of factors, such as:

  • Business risk. The number and type of clients a business provides services to may affect premium rates.
  • Coverage limits. The more coverage a company has under the insurance policy, the higher the costs.
  • Claims history. A company with a history of claims will typically end up paying more for insurance coverage.
  • Location. Like with many other types of insurance, the business location can determine some of the costs.
  • Industry. The financial industry can have higher risks than several other industries. Depending on the risk profiles of industries and professions, premium costs can vary.
  • Number of employees. A higher number of employees means potentially increased likelihood of errors.

The Bottom Line

Overall, E&O insurance is a way for a business to help protect themselves and their employees against financial burden of negligence claims made about the professional services or advice provided by the business and its employees. If a company or a professional makes an error which results in a loss, E&O insurance may help cover expenses they could incur as a result of legal proceedings.

If your company is looking for E&O insurance and other business insurance, we can help you find the right insurance provider. Contact us here at Acrisure to learn more about E&O insurance and to get started with finding the right coverage for your business and employees.

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