Errors and Omissions (E&O) Insurance for Professional Service Firms

Any professional can make a mistake regardless of how good they are at their craft. Even if the professional is innocent, defense costs can mount up, putting a financial strain on the business. To protect the professional and their business if they get sued, Errors and Omissions Insurance (E&O) is a worthwhile solution. To help you become more familiar with this topic, let’s explore what E&O insurance is, what it covers, and who needs it.    

What Is Errors and Omissions Insurance?   

Errors and Omissions Insurance is a type of commercial insurance policy that protects against lawsuits over transactions between professionals and their clients. It’s often needed when the client feels the professional has caused them harm.   

E&O, also known as professional liability insurance, protects individuals and companies against the following types of allegations:  

• Errors  
• Oversights  
• Professional negligence  
• Misrepresentation   
• Bad or inaccurate advice  
• Failure to meet a deadline  
• Failure to deliver a specific service  
• Failure to meet a standard of care  
• Violation of good faith and fair dealing  
• Personal injury claims (libel and slander)  

An error or omission can easily occur despite a professional’s commitment to diligence and professionalism. For that reason, E&O is a staple of commercial insurance for professionals.   

Why Professionals Need E&O Insurance  

In considering the various types of commercial insurance your business needs, E&O insurance should be high on your list for various reasons.   

1. Company investors may require a business owner to have E&O insurance before investing in your company. Even if investors don’t require business owners to have E&O coverage, it will be easier to attract investors if you have it.   
2. Another reason to purchase E&O insurance is that payouts from lawsuits can be extraordinarily high. A study by Ames & Gough, as cited in Insurance Journal, states that a couple of legal malpractice suits settled in amounts over $250 million. Most of the insurance companies surveyed stated they had paid out claims of over $150 million. Another article in Insurance Journal states that average E&O claims in the nurse practitioner field were over 430,000 in 2022.  

It’s always unsettling to learn that a client is unhappy with your services, and it’s even more unsettling to learn they’ve decided to take legal action against you. An E&O insurance policy can give you peace of mind in knowing that your business can continue as usual until a claim gets settled.   

What Types of Professionals Need E&O Insurance?  

Any professional who provides a service to clients for a fee should have E&O insurance. Here are a few of the most common professions that need E&O insurance: 

• Insurance agents and brokers 
• Doctors 
• Dentists 
• Accountants 
• Lawyers 
• Financial planners 
• Engineers 
• Website developers 
• Wedding planners 
• Barbers and hair stylists 
• Consultants  

What Errors and Omissions Insurance Covers and Doesn’t Cover  

Regardless of the industry, professionals should be aware of what E&O policies cover and what they exclude. Professionals should read through their policies carefully—especially since every policy is different. But in general, E&O policies cover the following things:  

• Legal administrative and defense costs  
• Attorney fees  
• Settlements and judgments up to a certain amount  
• Disciplinary proceedings  
• Loss of earnings  
• Subpoena assistance  

E&O policies also commonly exclude the following issues:  

• Acts that are criminal, fraudulent, or dishonest  
• Damage to someone’s property  
• Third-party injuries  
• Employment matters  

While these issues aren’t covered by E&O insurance, they may be covered by other commercial insurance policies such as general liability or workers’ compensation.   

How Much Does E&O Insurance Cost?  

Because every business is different, insurance companies consider various factors when determining rates for E&O insurance. These are the types of questions insurers ask and the reasons they have a bearing on E&O insurance rates:  

• Size of the business – Businesses with more employees have greater risks.  
• Amount of annual revenue – High revenues generally carry higher risks.  
• Type of industry – Certain industries such as the building trades have higher risks of property damage as well as other professional liability risks. 
• Employee training – Well-trained employees reduce risks. 
• Typical contracts – The verbiage in contracts may increase or decrease liability risks.  
• Location – Different states have various minimum limits for professional liability.  
• Claims History – Companies with claims will have to pay higher premiums until their loss experience improves. 
• Coverage limits – The higher the limits of liability you select, the higher your premium will be.   

These and other factors help to form a risk profile for your business. If cost is a concern, your insurance agent may be able to suggest ways to reduce the premium—such as adjusting liability limits or mandating training for employees.  

E&O Insurance Rounds Out Other Commercial Policies  

Although E&O insurance isn’t legally required for any type of business, it’s just as important as other commercial coverages. An E&O policy can help prevent out-of-pocket expenses and disruptions to your business.   

To get a quote on E&O insurance or any other type of commercial insurance, contact one of our agents at Leap Carpenter Kemps Insurance Agency at 309-384-0727 today!