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What Does Errors and Omissions (E&O) Insurance Cover?

Errors and Omissions

Errors and omissions insurance cushions businesses against claims of negligent actions or inadequate work. If a client sues a company due to a work mistake, the insurance will cover legal expenses, including the cost of judgment or a settlement. Any business that offers services to clients for a fee requires errors and omissions (E&O) insurance. Here is what the insurance covers.

What Do Errors and Omissions Insurance Cover?

Errors and omissions coverage is considered to be a form of professional liability insurance. The two terms are synonymously used in most industries. E&O insurance protects businesses when accused of a mistake, including:

Breach of Contract

Undelivered services can interrupt the business plan for clients. When a business fails to provide the promised services, it could negatively impact the client’s bottom line, resulting in a lawsuit. 

An insurance agent may fail to deliver adequate auto insurance coverage for a customer after promising to do so. The client can get involved in an accident and surprisingly find out they’re not insured when making a claim. They could sue the agent for not securing the appropriate coverage. E&O insurance covers these lawsuits and settlements. 

Oversights or Errors at Work

A small oversight or error can cost a client a lot of money. A client may sue a business over work mistakes to recoup their losses. E&O insurance will help cater to the legal costs. 

A real estate agent may incorrectly list the square footage of a home on an MLS sheet. After buying the house, a home buyer may notice the error and file a lawsuit against the agent. The agent’s E&O policy will cover the cost of the attorney and court-ordered judgment.

Professional Failure or Negligence 

A client may sue a business for negligence if they fail to adhere to minimum industry standards when working with them. Sometimes a client may not be satisfied with the work done even when there is nothing wrong with it and sue for negligence. 

A client can hire a network security company to safeguard their customers’ data. In case of a data breach, thousands of clients’ credit card details and names will be exposed. The client can file a negligence lawsuit since they believe the company should have prevented the incident.

Missed Deadlines

Missed deadlines can cause a delay in clients’ business plans and lost revenue. When a client sues a business due to late work, E&O could cover the expenses of the lawsuit. 

If a client hires a tax preparer to file a tax return and fails to do so on time, the client will be forced to pay a fine. The client can sue the tax preparer for missing the deadline to recover the fine.

Why Do Businesses Need Errors and Omissions Insurance?

Businesses need errors and omissions insurance (E&O insurance) to cater to the cost of liability claims. Without this type of insurance, a company risks closure due to a lack of funds to pay for claims. 

Even after agreeing to settle the matter out of court, the business is expected to pay a large sum. Any company that offers a service to clients should have errors and omissions covered, including: 

  •    Consulting companies 
    •    Marketing firms 
    •    Website developers 
    •    Printing and publishing companies 
    •    Pet Services 
    •    Hair salons and barbershops 
    •    Accountants 
    •    Advertising firms 
    •    Educators 
    •    Engineering firms and others

A client can sue a business if they experience a loss due to an omission or error made during the application process or consultation. Such errors could lead to a poor investment decision. 

Errors and omissions cover caters to any damages and legal fees assigned to the client by the company. E&O costs vary depending on different factors, including: 

  •    Size of the business or company 
    •    Nature of the business
    •    Claims history

What Errors and Omissions Idemnity Does Not Cover

E&O does not cover: 

  •    Harassment or discrimination claims from employees 
    •    Property damage caused by the business 
    •    Purposeful wrongdoing 
    •    Data leaks 
    •    Employee illnesses or injuries 
    •    Illegal acts 
    •    Bodily injury caused by the business


E&O insurance does not cover claims before the policy’s retroactive date. The retroactive date refers to incidents that occurred on or after a specific date eligible for coverage in the policy.

If the coverage expires, it no longer protects the business. Errors and omissions indemnity is claims-made, meaning that the policy should be in effect when a client files a lawsuit for the insurer to make payment for the claim.

Choose the Best Errors and Omissions Insurance Coverage

Not all E&O policies are the same. Having a proper understanding of the plan will help you select the best errors and omissions insurance coverage for your business. 

Compare multiple companies that offer E&O insurance cover. Choose one that provides a plan that fits the specific coverage needs of the business.

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