What does Errors and Omissions (E&O) insurance cover?
E&O insurance can help cover expenses if you are accused of making a mistake, missing a deadline or causing a financial loss while providing business services.
There are two main areas where errors and omissions insurance can protect you from unexpected costs:
Your business mistakes
You can make all the right moves at your business, but mistakes are still not 100% avoidable. After you pay your deductible, E&O insurance can protect you from out-of-pocket costs until you reach your policy limit if you or your employees are accused of making a mistake that causes financial harm to another person or business.
Example: In the excitement of closing a deal on a prime piece of property, a real estate agent forgets to disclose a defect with the home’s siding that will cost $20,000 to fix. The person who purchased the home could file a lawsuit against the agent. The agent’s E&O coverage would cover some expenses up to the policy limit.
Accusations of professional negligence
When you provide professional services, you are expected to act in the best interest of your clients. Lawyers call this “duty of care.” If your business actions lead to financial harm, you could be accused of professional negligence and forced to defend yourself.
Your E&O policy would cover related expenses up to the limits of your policy, including your lawyer and legal fees and judgments if you are ruled liable for your client’s losses.
Example: A hot new company’s stock is about to hit the market. It’s generating a lot of buzz, even though it’s known to be a potentially volatile option. A financial advisor goes all in with a client’s investments, even though the client prefers a more conservative and balanced approach. A day later, the stock tanks and 80% of the investment is wiped out.
The client could have grounds for legal action against the advisor. The advisor’s E&O coverage would pay for defense expenses up to the policy limits.
What isn’t covered by an E&O policy?
E&O insurance provides important coverage, but you’ll need to explore other small business insurance policies to make sure you are protected from all the risks your business faces. We also offer coverage for business-related injuries, damage to another person’s property, business driving, and more.
Read your policy documents carefully so you understand what is and is not covered with E&O insurance for your business.
Next Insurance E&O policies provide coverage on a “claims-made basis.” It’s an old-school insurance industry term that basically means you are covered only for claims reported during the policy period — the first date your policy is active until your coverage ends.
Client injuries and property damage
General liability insurance covers the most common accidents that can cause non-employee injuries or damage to property that does not belong to you. For example, it can cover medical expenses after a slip-and-fall accident or repair/replacement costs if you or an employee damage a client’s property.
Employee injuries and illnesses
Workers’ comp insurance can cover medical expenses, lost wages, and employer liability if one of your employees is injured or becomes ill while working for your business. It is required for businesses with employees in most states.
Most states require a commercial auto insurance policy for business-owned vehicles. Even if it’s not required in your state, commercial auto provides protection for accidents that occur while driving for your business that are not often covered by a personal auto insurance policy.
Your E&O policy also won’t cover:
E&O policies are designed to protect you from losses from your professional mistakes. Any damage to your business property and equipment or business interruption losses are not covered.
Claims made outside your policy period
Report any E&O claims or potential claims as soon as possible. Since E&O insurance is a claims-made policy, you are only covered or claims reported during the policy period (the time your policy is active).
Errors and omissions insurance covers professional mistakes made by your employees or you, but it does not cover claims made against you as their employer. If a former employee sues you for discrimination or wrongful termination, E&O insurance cannot help you. You will likely need employment practices liability insurance.
Intentional wrongdoing and illegal activity
Mistakes happen, and your E&O policy will cover many of them. However, if you or an employee purposely make work-related decisions that cause financial or physical damages, you might not have coverage. To avoid this, get legal advice from a professional to make sure you comply with rules and regulations wherever you do business.
If you intentionally advertise false information about your business, your product, or your credentials and you are sued, you won’t be able to fall back on your E&O insurance for help. Make sure that you are transparent and truthful with all public-facing information.
How NEXT can help you with E&O business insurance
We offer an easy way for small business owners and self-employed professionals to get business insurance online. In just a few minutes, you can get a quote, purchase coverage and share your certificate of insurance.
Our team of licensed, U.S.-based advisors is here to help if you have any questions.