Errors & Omissions (E&O) Insurance helps protect against claims that your company's services, advice, or deliverables were wrong, late, or incomplete, and cost a client money. Coverage helps pay for your legal defense, even if the claim turns out to be unfounded. If you settle or lose, it also covers the settlement or judgment up to your policy limit.
In some contracts, E&O coverage is called Professional Liability Insurance, so don't be thrown if a customer's requirements use that name instead.
The surprises are in the details. This guide walks you through what counts as a claim, what's excluded, and when the policy responds, so you know what you're buying before a contract or a claim tests it.
Key Takeaways
- E&O Insurance covers financial harm to a client caused by an alleged mistake in your professional services, advice, or deliverables.
- Coverage helps pay for defense costs and settlements. In most policies, defense costs count against your E&O limit.
- Bodily injury, employment claims, and data breaches fall under other policies, and intentional acts are generally excluded.
- E&O coverage is usually claims-made, meaning the claim has to be made while your policy is active, for work done after your retroactive date.
What Kinds of Claims Does Errors & Omissions Insurance Cover?
An unhappy client alone isn't a covered claim. The client has to allege an error, omission, or negligent act in your work that cost them or their business money.
Common triggers include:
- Errors and bad advice. An incorrect recommendation, calculation, or deliverable.
- Omissions. Something you should have done or flagged and didn't.
- Negligence. Falling short of your profession's standard of care.
- Missed deadlines and failure to deliver. Work that was late or never delivered as agreed.
- Misrepresentation. A client says you overstated what your services would do.
Coverage follows the services your policy describes, so work outside that description, or a specifically excluded service, may not be covered. It generally extends to employees working on your behalf. Whether it reaches independent contractors depends on your policy wording or an endorsement.
What Doesn't Errors & Omissions Insurance Cover?
E&O Insurance is built for financial loss from your services. Other kinds of harm usually belong to other policies. Some examples:
- Bodily injury and property damage: This is usually covered by General Liability.
- Employment claims: Discrimination, harassment, or wrongful termination claims from your employees fall under Employment Practices Liability Insurance (EPLI).
- Data breaches: These usually fall under a Cyber Insurance policy. If you deliver software or technology, Tech E&O will likely replace E&O.
- Intentional or criminal acts, fines, and penalties: E&O covers mistakes and not deliberate wrongdoing. Many E&O policies exclude fines and penalties.
- Intellectual property infringement: This is often excluded unless you add Media Liability Insurance.
- Contractual guarantees: A guaranteed result or money-back promise isn't covered unless the claim also involves negligence.
- Known or prior claims: Incidents you knew about before your E&O policy started, or work done before your retroactive date.
When Do Errors & Omissions Claims Apply?
E&O Insurance is usually written on a claims-made basis. This means:
- The claim and the work both have to fit your policy period. The claim has to be made and reported while your policy is active, and the work has to come after your retroactive date. Keeping coverage continuous, and carrying that date forward when you switch carriers, protects your past work.
- Potential claims should be reported early. If you get a demand letter, report it to your broker or carrier before the policy ends or before you switch policies. A new carrier can exclude something you already knew about.
- Tail coverage fills the gap when a policy ends. If your policy ends without a replacement that carries your retroactive date, such as when you close the business, sell it, or cancel, an extended reporting period (tail coverage) gives you time to report claims for past work.
Learn more about tail coverage and retroactive dates.
Frequently Asked Questions
Is a client complaint the same as a claim?
Not always. Most insurance policies define a claim as a written demand for money or a lawsuit, and some also include demands for services or legal proceedings. Report complaints promptly either way.
How much does E&O Insurance cost?
Based on Vouch policy data, tech and professional services companies with a standard $1M coverage limit pay a median of around $2,000 per year. Your price depends on your revenue, industry, limits, and retention. Learn more about how much E&O Insurance costs.
What's the difference between E&O and General Liability?
General Liability covers physical harm, meaning bodily injury and property damage. E&O covers financial loss caused by mistakes in your professional work. Many companies carry both.
Does E&O cover my employees and contractors?
Coverage generally extends to employees working on your behalf. Independent contractors depend on your policy wording or an endorsement, so ask your broker before assuming they're included.
Does Commercial Umbrella Insurance cover errors and omissions?
Usually not. A Commercial Umbrella policy sits above your General Liability, Workers' Compensation, and Auto policies, and it doesn't cover financial loss from professional services. For more E&O capacity, you can raise your E&O limit or add an excess E&O policy.
Does E&O cover product defects?
Sometimes. If a defect in a service or software deliverable costs a client money, E&O can respond, because it covers financial harm. Injury or property damage caused by a defective physical product goes to Product Liability or General Liability Insurance.
Vouch Specialty Insurance Services, LLC (CA License #6004944) is a licensed insurance producer in states where it conducts business. A complete list of state licenses is available at vouch.us/legal/licenses. Insurance products are underwritten by various insurance carriers, not by Vouch. This material is for informational purposes only and does not create a binding contract or alter policy terms. Coverage availability, terms, and conditions vary by state and are subject to underwriting review and approval.
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