What is Errors and Omissions (E&O) Insurance?

E&O Insurance works by covering the costs associated with defending against a claim made by a client who alleges that your services caused them a financial loss. If a client sues your business for mistakes, negligence, or omissions in the services you provided, E&O Insurance will typically cover the following:

• Legal defence costs include lawyer fees and court costs, which can mount up quickly even if the case is eventually dismissed.
• Damages and settlements: If the claim is upheld and you are found liable, E&O Insurance will cover the costs of damages awarded by the court or the settlement agreed upon.
• Claims made during the policy period: The policy provides coverage for claims made while the insurance is active, even if the incident that caused the claim occurred earlier.

The insurance protects professionals from financial loss due to the inherent risks of providing expert services.

Who Needs Errors and Omissions Insurance?

E&O Insurance is essential for businesses and professionals who provide expert advice or services for a fee. This includes:

• Consultants: Business, marketing, management, and IT consultants who provide advice that may impact a client’s operations.
• Lawyers: Legal professionals who provide advice and representation to clients.
• Accountants and Financial Advisors: Those offering financial or tax advice or services.
• Architects and Engineers: Professionals designing and overseeing construction or infrastructure projects.
• IT Professionals and Software Developers: Businesses or individuals providing software solutions or technical support.
• Healthcare Professionals: Doctors, therapists, and other medical professionals who offer advice or care to patients.

If your business involves providing advice, guidance, or professional services, you are exposed to the risk of making mistakes that could lead to a claim. E&O Insurance is designed to mitigate these risks and offer peace of mind.

What Does Errors and Omissions Insurance Cover?

E&O insurance provides financial protection for various scenarios, including allegations of professional negligence, failure to meet contractual obligations, mistakes in service delivery, and legal defence costs. It is specifically tailored to address claims from clients who experience financial harm due to perceived or actual professional advice or service errors.

It is important to note that E&O Insurance does not cover criminal acts, intentional wrongdoing, or fraud. The policy covers only unintentional errors, negligence, or omissions in services.

The Difference Between E&O Insurance and General Liability Insurance

Many confuse Errors and Omissions Insurance with General Liability Insurance, but the two serve different purposes.

• E&O Insurance covers claims related to your professional services, such as mistakes, negligence, or omissions.
• General Liability Insurance covers third-party claims for physical injuries or property damage caused by your business activities. This might include accidents that occur on your premises or damage caused by your business operations.

E&O Insurance is crucial for businesses offering professional services, whereas General Liability Insurance is essential for covering physical risks and accidents.

Is Errors and Omissions Insurance Mandatory?

E&O Insurance is not legally required by law for most businesses. However, many professional industries have regulations or standards that require it. For example, their governing bodies may require lawyers, accountants, and healthcare professionals to carry professional liability insurance. Additionally, many clients, especially large corporations or government entities, may insist on seeing proof of E&O Insurance before entering a contract.

Even if not mandatory, E&O Insurance is highly recommended for any business that provides professional services. The risk of a claim from a dissatisfied client or a simple mistake can be financially crippling and having E&O Insurance provides a safety net.

How Much Does Errors and Omissions Insurance Cost?

The cost of E&O Insurance varies depending on several factors:

• Business Size: Larger businesses or those with more employees often pay higher premiums due to the increased risk.
• Industry: Certain industries, like healthcare or finance, may have higher premiums due to the complexity and potential risk of the services provided.
• Claims History: Businesses with a history of claims or lawsuits may face higher premiums as they are considered higher risk.
• Coverage Limits: The amount of coverage you require will affect the premium. Higher coverage limits typically result in higher costs.

E&O Insurance is generally affordable, especially compared to the potential cost of defending against a claim or paying a settlement out of pocket. Premiums are often tailored to your business’s specific needs.

How Do I Make a Claim on Errors and Omissions Insurance? 

If you are facing a claim, it’s important to notify your insurance provider immediately. Typically, the process involves:

1. Reporting the Claim: Inform your insurer of the claim against you, providing details of the incident and any relevant documentation.
2. Investigation: The insurer will investigate the claim, reviewing the facts, your professional standards, and any supporting evidence.
3. Legal Defence: If needed, the insurer will provide legal support, covering the costs of defending against the claim.
4. Resolution: If the claim is found to be valid, the insurer will help cover the damages or settlement, subject to the policy limits. 

Does Errors and Omissions Insurance Cover Past Mistakes?

Many E&O policies include retroactive coverage, which covers claims related to work or services provided before the policy began if the claim is made during the policy period. However, retroactive coverage is not always included, so it’s important to check with your insurer and understand the specifics of your policy.

How Does E&O Insurance Compare to the E&OE Disclaimer?

E&O insurance should not be confused with the disclaimer of the E&OE (Errors and Omissions Excepted). E&OE is a contractual clause used to minimise liability for minor document inaccuracies, while E&O insurance is a formal policy that protects businesses from client claims of negligence or service errors.