What is E&O insurance?
Professional liability insurance is commonly known as Errors and omissions insurance (E&O). It’s a type of insurance that protects businesses against negligence claims or legal actions from customers who suffered losses as a result of inadequate work performed by your company.
If your company gave advice or services that caused a client financial harm, even if these claims are alleged or unsubstantiated, professional liability insurance can protect you from losses.
This typically applies to professionals like lawyers and consultants who offer advice to clients. However, it covers not only mistakes made in professional services but also the costs of a legal defense if a customer decides to sue—even if you haven’t done anything wrong.
E&O policies are an essential type of business coverage as they help protect you from financial loss in the event of a lawsuit relating to mistakes made by your business.
Who needs E&O insurance coverage?
Professional liability insurance coverage is essential for any business. Any business or professional that provides advice or services based on expert knowledge or training should consider buying E&O insurance.
Some examples of businesses that can benefit from gettting liability insurance for professionals include, but are not limited to the following:
-
Accountants: It’s important that insurance for accountants includes errors and omissions coverage. If you provide incorrect financial advice or negligently handle financial records, professional liability insurance for accountants can help ensure you are protected against a claim.
-
Architects: If your professional design or planning services are deemed inadequate or flawed, architect professional liability insurance can help protect you if your client sues you. This type of coverage can also cover you should your work fail to meet business codes or regulation.
-
Consultants: Errors and omissions coverage is an essential component of business insurance for consultants. If your advice or recommendations are perceived as inadequate or negligent, professional liability insurance for consultants can protect you if someone sues you for these mistakes.
-
Engineers: No matter if you work for a firm or independently, it’s important to have professional liability insurance for engineers. If your designs or recommendations are deemed inadequate or flawed, professional engineer liability insurance can cover the cost of the claim if someone sues you.
-
Insurance agents: E&O insurance for insurance agents can protect you if a client suffers financial losses as a result of your insurance advice or services. For example, if you fail to recommend appropriate coverage, provide incorrect information or mishandle policy documentation, E&O insurance can safeguard you against claims.
-
Lawyers: Lawyers professional liability insurance, also known as LPL insurance, provides coverage for if your legal services fail to meet legal standards or result in financial losses for your client. Should a client decide to sue you or your firm for the damages, professional liability insurance for lawyers can protect you from the claim.
-
Notaries: E&O insurance for notary agents protects against the risks that come with serving as an impartial witness to the signing or authentication of legal documents. If you improperly notarize documents or signatures, E&O notary insurance can cover the costs of a claim if a client sues you for losses.
-
Real estate professionals: Errors and omissions insurance for real estate professionals helps to reduce the risks associated with buying and selling property. If you give inaccurate information or fail to disclose important details about a property, errors and omissions real estate insurance can provide coverage.
-
Salon professionals: If a client brings a claim against your salon, professional liability insurance will cover the medical payments, legal fees, and other expenses of the claim. For example, if a client suffers a reaction to a product you used, E&O insurance can help pay for medical treatments or legal fees.
It’s important to understand that lawsuits can arise out of any professional service, which is why it’s essential to protect yourself with the right coverage. It’s a good idea to have E&O coverage even if you’re not legally required by your profession or state to carry it. Without it, you run the risk of being targeted by lawsuits or other legal action that can damage your company.
At the end of the day, human error still exists, and this type of insurance is invaluable to any business for safeguarding from financial losses due to mistakes or oversights.
If you are a professional providing advice or services, speak with an agent about how E&O coverage can help protect your business from expensive litigation costs and judgments.
(855) 843-2963
Speak to an insurance professional for free!
How does E&O insurance work?
E&O insurance works a lot like any other insurance policy when it comes to protecting your business.
If a client alleges that you made a mistake or failed to provide promised services, errors and omissions coverage can pay for legal defense costs and settlements or judgments up to the policy limits.
There are 4 main steps involved in securing coverage and filing E&O insurance claims:
What does professional liability insurance cost?
Based on sales data from Insureon, the average professional liability insurance cost for small businesses is $61/month, ($735/year).
As we’ve mentioned, the cost of E&O insurance depends on several factors, including the type and size of your business, your annual revenue, and the services you offer. Based on the factors, small businesses can expect to pay anywhere from $500 to $2,000 annually for coverage.
Additionally, some providers may offer discounts or other incentives to help lower the cost of premiums and other professional liability insurance costs.
Buy professional liability online for as low as $29.41/month*
*Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business.
Averages based on July-September 2023 data of 10% of total SimplyBusiness policies sold.
To give you a concrete example, we used the quote-building tool from our insurance partner, Simply Business, to run a simulation to determine the estimated cost of professional liability insurance.
We entered details for a California-based business consultant in 2023, without employees (sole proprietor), and with an annual revenue of $350,000. Based on these and other sample parameters, this errors and omissions insurance policy would cost $1,411 per year with $1 million in coverage per claim and $1 million in aggregate.
While this is just an example of how much E&O insurance costs, and how much you’ll pay will depend on your own circumstances, this errors and omissions insurance quote can serve as a benchmark to understand what someone could pay.
With that said, it’s important to get multiple professional liability insurance quotes and compare professional liability insurance coverages from different providers to find the best coverage at the most affordable price. Knowing what your business needs, as well as any potential risks you may face, can also help you get a better understanding of how much coverage to purchase.
What is covered by errors and omissions insurance?
Errors and omissions insurance protects businesses against financial losses resulting from mistakes or negligence.
Common types of claims covered by E&O policies include:
- Professional malpractice
- Breach of duty
- Negligent advice
- Misrepresentation
- Mismanagement
Depending on the errors and omissions policy you purchase, your coverage may also extend to other areas, such as:
It’s important to read the policy terms carefully and understand what is covered before you purchase a professional liability insurance policy. This can help ensure that your business has the protection it needs in case of a claim or lawsuit.
What isn’t covered by E&O insurance?
Errors and omissions insurance doesn’t cover:
- Intentional acts of wrongdoing
- Acts of sabotage
- Criminal activities
It also won’t cover any losses resulting from non-professional services. An example of this is if an employee provides a service or advice that they are not authorized to offer, and it results in a claim of negligence. This would be considered a non-professional service, and therefore, would not be covered by your insurance policy. This is another reason risk management procedures are important to consider when opting for professional liability insurance.
Additionally, some errors and omissions insurance policies don’t cover punitive damages in certain states. For this reason, it’s important to always check if a policy is available in your state and read the fine print for exclusions of coverage.
Apart from this, damage to physical items aren’t covered, such as bodily injury or property damage. For this you would need another type of insurance policy such as general liability, workers comp, inland marine insurance, etc..
You can also speak directly to the provider if you have any questions about the coverage offered by your E&O policy.
(855) 843-2963
Speak to an insurance professional for free!
More insurance types for your business
Depending on your business, you may want to pair E&O insurance with additional coverages.
Explore related articles by topic
You’ve viewed 3 of 3 articles
LOAD MORE