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

David Cribb | Jun 7, 2023 | minute read

Errors and OmissionsAny 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.   

E&O insurance

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!  

Share This Blog

Like our content? Subscribe to Our Blog!


Related Articles

You get all the benefits and advantages of being a...

Natural disasters and crimes can impact a business...

About The Author

Dave Cribb, the Chief Operations Officer of LCK, has an extensive background in management and sales in the financial sector.

Need more Specific Advice?

Tell us about your exposures, and we'll write an article about how we would mitigate your risk.