What is Errors and Omissions Insurance?
Errors and Omissions insurance, commonly known as E&O insurance, is a form of professional liability insurance designed to protect employees and employers against clients’ claims of negligence or inadequate work. E&O policies usually cover legal costs associated with the claim and most or all of the ensuing settlement, though a policy may not cover the entire settlement if the amount exceeds the limit specified in the insurance contract.
In many industries, lawsuits happen whether the associated claims are legitimate or not. For example, a graphic designer is sued after creating a trademark that another business claims is similar to their trademarked logo. Court costs are normally high even if the claim is baseless and ends in the defendant’s favor. In such a case, E&O insurance could financially protect the graphic designer during a costly legal battle.
Why do I need Errors and Omissions Insurance?
While not all types of businesses are required by law to carry this coverage, some professionals are required by regulatory or licensing boards within their profession to have it. In more than 10 states, for example, real estate agents are required to show proof of E&O coverage before they receive their licenses.
While local or state laws may or may not expressly require some types of professionals to carry E&O coverage, other laws regarding their duty of care to clients make it a necessity. Additionally, you should seriously consider errors and omissions coverage if your business provides a professional service or regularly gives advice.
What does Errors and Omissions Insurance cover?
What is covered?
- Defense costs
- Alleged or actual negligence
- Temporary staff and independent contractors
- Claims arising from services provided in the past
- Claims and damages
- Personal injury (e.g., libel or slander)
- Copyright infringement
What is not covered?
- Employment matters
- Fraudulent acts
- Bodily injury or property damage
- Personally identifiable information
- Patents and trade secrets
- False advertising
- Other services