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Errors and Omissions Insurance: What Is E&O Coverage?

Making a mistake, or just being accused of one, can create legal problems. Errors and omissions insurance may help.
Tina OremNovember 2, 2021
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Errors and omissions insurance, also called E&O insurance, is a type of business insurance that protects businesses against claims of mistakes, negligence, inadequate work, inaccuracies, misrepresentation or similar allegations.
Your business should have E&O insurance if it provides services to customers for a fee.

What is errors and omissions insurance?

E&O insurance is coverage that protects your business if someone accuses you of making a mistake and files a claim against the business.
Errors and omissions insurance may cover you if you’re accused of the following:
  • Errors or oversights in your work.
  • Failure to deliver a service or missed deadlines.
  • Professional negligence or failure to meet a standard of care.
  • Breach of contract.
Errors and omissions insurance is a kind of professional liability insurance, and the two terms are used interchangeably in some industries.
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What does errors and omissions insurance cover?

If someone files a lawsuit against your business, E&O insurance can pay out to cover:
  • Legal and court costs. This includes attorney fees and other costs a business must pay to deal with a covered claim, whether or not the legal system finds you at fault.
  • Settlements or judgments owed. If the business owner is found to be at fault, errors and omissions insurance can help with these payments.
  • Damages and expenses. Your business might have to pay these if it infringes on someone else’s copyright, for instance.
Some E&O policies will even cover work done outside of the country.

What doesn’t E&O insurance cover?

E&O insurance may not cover:
  • Illegal acts.
  • Purposeful wrongdoing.
  • Bodily injury your business causes (general liability policies typically cover that).
  • Property damage your business causes.
  • Data leaks.
  • Employee injuries or illnesses (workers' compensation policies typically cover that).
  • Discrimination or harassment claims from employees (employment liability policies typically cover that).
In general, errors and omissions insurance policies are claims-made policies, which means coverage must be in place at the time a claim is made in order for the insurer to cover it. If your coverage lapses, you’ll no longer be protected.
E&O insurance policies can be retroactive to a specific date defined in the policy. That means they’ll cover claims of alleged mistakes dating back to that point, but not before.

Who needs errors and omissions insurance?

If you provide professional services to customers for a fee, you should have some form of errors and omissions insurance.
Those professions might include:
  • Accounting.
  • Architecture.
  • Financial and investment advising.
  • Insurance.
  • IT consulting.
  • Real estate.
Some professionals are required to carry E&O insurance, whether it’s by law, licensing boards or professional associations. For example, Tennessee and Rhode Island both require real estate agents to have E&O policies in place in order to be licensed.
Clients may also ask for proof that you have E&O insurance and decline to work with you if you don’t provide a certificate of business insurance.

How much does errors and omissions insurance cost?

The cost of E&O insurance varies. For example, insurance provider The Hartford estimates that business owners spend an average of $500 to $1,000 per employee per year on E&O coverage.
How much this insurance will cost you depends on several things, including:
  • Whether you’re in a high-risk industry.
  • How much coverage you want.
  • Whether there's a history of liability claims against your business.
  • Where you do business.
  • Number of employees.
To find out how much your coverage will cost, get quotes from several insurance companies.

How to get E&O insurance

Errors and omissions insurance is a common type of coverage that major commercial insurers offer.
If you’re interested in a business owner's policy, which also includes general liability insurance and commercial property insurance, consider The Hartford and State Farm. Both allow customers to tack E&O insurance onto a BOP. Bundling coverage can make your shopping experience easier and help you save money.
If you need E&O coverage quickly, consider Next and Chubb, both of which allow users to get quotes and then purchase insurance policies online.
If you need insurance for a home-based business, note that you can’t get errors and omissions insurance under homeowners insurance endorsements or in-home business policies.
NerdWallet recommends getting quotes from several insurance companies before purchasing a policy so you can compare costs and coverage details.

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