What is Errors & Omissions Insurance (E&O) and Do You Need It?
If your business enterprise provides professional services to other businesses or industries, you should consider carrying a professional liability insurance type known as Errors & Omissions Insurance, or E&O Insurance.
In this article, we’ll explain what E&O Insurance is, who needs it, what it does – and doesn’t cover, and outline some scenarios that benefited business owners who carried an E&O business insurance policy. We've also included recommendations for finding the best options for E&O Insurance for your small business.
What is Errors & Omissions Insurance?
E&O Insurance is a form of professional liability insurance that protects companies, their workers, and other types of professionals against claims of substandard, inadequate, or incomplete work. This type of policy covers your business for any subsequent financial loss due to your error or omission – up to your policy limits.
How Much Does Errors & Omissions Insurance Cost? Like all insurance premiums, there are variables affecting the price. The type of work you do, the service you provide, and your level of expertise are major factors. On average, plan on spending between $500 and $1000 per year, per employee on this type of professional liability insurance.
Who Needs Errors & Omissions Insurance?
In short, business owners who sell their expertise or services should seriously consider carrying an E&O insurance policy. An E&O policy can help cover legal fees arising from a negligence claim, e.g. unintentionally missed deadlines, accounting miscalculations, unsatisfactory work product, project goes over budget, provided unqualified guidance, or other claims of professional negligence resulting in legal action.
Just about any business that provides a specialized service would benefit from carrying Errors & Omissions Insurance. Here is a quick list of some of the professionals that would benefits from E&O insurance:
- Information technology experts
- Medical professionals
- Attorneys
- Marketing agencies
- Financial advisors and other services
- Real estate agents
In general, you won’t need E&O Insurance if your business provides non-professional services – like retail sales, or food services like restaurants or cafes. However, if you provide a physical product as a service, like a wedding florist, caterer, or photographer, you might want to consider carrying an Errors & Omissions Insurance rider to protect your business in the event something goes amiss.
What are Some Instances of Errors & Omissions?
In the following circumstances, the service providers would be held responsible for their negligence. Without E&O Insurance, many of these businesses would be forced to shutter their doors under a mountain of legal debt.
- An accountant forgets to file a client’s taxes on time or omits other necessary documents. In this case, the accountant was negligent in their professional capacity, liable for errors and omissions, and any financial damages to their client for the oversight.
- An engineer makes a critical miscalculation in a building’s plans that causes structural failure years after the fact. The cause of the building’s failure leads back to the engineering firm where the plans originated, and they are held liable for the damages.
- A website developer misses a launch date set to coincide with a trade show event. Moreover, the site does not perform to the contracted functional specifications. The web developer's inability to complete the work on time, and to their client’s expectations means the developer would be liable for the incomplete work and breach of contract, among other things.
What Doesn’t Errors & Omissions Insurance Cover?
Errors & Omissions Insurance policies do not cover warranties or product guarantees. Additionally, E&O Insurance does not cover accidents, bodily injury claims, commercial property damages, or any illegal acts. There are other types of insurance products designed for these situations.
Although E&O Insurance is a standalone product, ask your insurance broker about bundling other liability insurance types into your policy to ensure there are no gaps in your coverage.
Where Can You Get Errors & Omissions Insurance?
Errors & Omissions Insurance is available from numerous insurance providers —brick and mortar as well as online. We've partnered with Next Insurance and their rates start at just $25 per month. Use our partner link to get a free quote.
Learn more about 12 other types of insurance. Take a look at our Ultimate Guide to Selecting Business Insurance.
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