Errors and Omissions (E&O) Insurance

Do you call yourself a professional? Do clients pay you for your expertise and advice?

Then they can sue you if you do something wrong and it costs them money. In fact, they can sue you even if you haven’t done anything wrong.

And without errors and omissions insurance, that could cost you. Big time.

But what is E&O insurance? What does it cover? And who needs it? Don’t worry, we’ve got it all covered here.

• What is errors and omissions insurance?

  The clue’s in the name. Errors and omissions insurance (E&O) protects you from the costs of a claim you made:

  an error (you did something wrong)

  or

  an omission (you left something out).

  Even if the claim is groundless, your E&O policy can hire an attorney to defend you and pay your legal fees. And, if it turns out you were at fault, it can also take care of the damages.

  What’s more, it doesn’t just cover errors or omissions made from the day you take out insurance. You can make your policy retroactive. Just pick the date you want your cover to start from and it’s noted on your policy documents. Then, as long as you keep your insurance continuous, it works forwards and backwards to that date.

  Simple.

  What’s confusing is that errors and omissions insurance is also known as professional liability insurance. All you need to know is, they do the same thing.

• Who needs errors and omissions insurance?

  If you offer your services as a professional, you need E&O insurance for several reasons:

  1. Because, as a professional, clients may well expect you to have E&O insurance. And a certificate to prove it.
  2. Because lawsuits are expensive. Your typical E&O suit costs around $150,000. And that’s just the amount awarded to your client. To cover your legal fees, add 5, maybe even 6 figures to that amount.
  3. Because even if your client has no grounds, you still have to defend yourself. It’s not just the default judgment you’ll face if you don’t (which means you’ll end up paying whatever they say you owe them). A claim like that can seriously damage your reputation, and that’s priceless.
  4. Your peace of mind. We all make mistakes. But if you’ve got an E&O policy, you know that if something goes wrong, or your professional service is called into question, you can relax. And get on with running your business.

  Because that’s the bottom line. Fighting a lawsuit doesn’t just cost you money and risk your reputation, it takes up your time. And that’s better spent on your business.

• What does E&O insurance cover?

  If a client claims you (or anyone employed by you, including temporary staff and independent contractors):

  • Gave the wrong advice
  • Left something out
  • Made a mistake
  • Missed a deadline
  • Said something untrue about a person/business

  Your policy can hire an attorney to defend you and pay your legal fees and compensation. Even if the claim is groundless.

  E&O insurance also covers claims made for work you did in the past.

  Plus, claims made for work you’ve done all over the world. As long as the claim’s filed in the U.S., a U.S. Territory, or Canada.

• How much does errors and omissions insurance cost?

  Errors and omissions coverage typically start at around $35 a month. But the cost varies, depending on:

  • The size of your business
  • The industry you’re in
  • Where your business is based
  • Your annual revenue
  • The amount of coverage you need
  • The deductible you choose

  To give you an idea, here’s an example of E&O insurance costs by location and profession:

  	IT Consultant	Business Consultant
  State	CA	TX
  Annual income	$150,000	$350,000
  Coverage limit	$500,000	$1,000,000
  Amount you pay towards the cost of a claim	$5,000	$5,000
  Monthly cost of policy	$36.75	$65
  Annual cost of policy	$441	$779

  The higher your coverage limit (the amount your insurer will pay for a single claim or all claims during the policy period) the more your policy costs. So choose your limit carefully.

  Just remember that lawyers’ fees, compensation and court costs can go through the roof. Try to imagine the worst-case scenario, then pick a figure you can realistically afford.

  The higher your deductible (the amount you pay towards the cost of a claim) the lower the price of your policy. But make sure you could actually afford to pay that amount, if a claim is made.

  And remember there are payment options. So you can spread the cost of your policy to fit your budget.

• What is the difference between errors and omissions insurance and professional liability insurance?

  There isn’t one.

  Errors and omissions insurance and professional liability insurance are names used to describe the same policy.

  What the policy is called depends on the industry you’re in.

  If you’re in real estate, tech or accounting, for example, the policy is called errors and omissions, or E&O, for short.

  Whereas if you’re a consultant, an engineer, or an architect, it’s known as professional liability insurance.

  Still confused? Read our blog post on the difference between errors and omissions and professional liability insurance.