Errors & Omissions (E&O) Insurance

E&O Insurance insurance is often an oversight for many new companies who may not realize its importance. E&O Insurance is designed to help insure against claims related directly to its name, “errors” and “omissions”.

This covers a potentially wide range of issues, but specifically is meant to help your company cover potential damages as a result of a mistake made while providing a professional service.

Every business in the service sector is hired by a client to either perform some type of task, or to provide advice related to your field of expertise. For most companies, this works out well. However, humans can make mistakes.

If a client believes your work was not done correctly (error) or an employee missed or forgot an important step in completing that contracted work (omission), your business could be liable for damages due to negligence or a perceived breach of contract.

Errors and Omissions Insurance is designed to help mitigate those costs. Many businesses believe that they are not at risk for lawsuits related to employee mistakes. However, any business that does contracted work can be sued for negligence.

While some clients may choose not to pursue legal action in situations where errors or omissions have occurred, not every client will be forgiving.

Some mistakes can be extremely costly for clients, who may then choose to pursue legal action to reimburse their costs. The bigger the contract, the more exposed your company could be to such legal consequences.

Your Business and Employees As the owner of the company you, your business, and its employees will be covered for claims arising out of your contracted work. All professional services offered for a fee and represented on your insurance application should be protected under Errors and Omissions insurance.

Subcontractors Even if you hire someone one time to help you complete a project, if they make an error or omission and it causes financial loss to the customer, it is most often covered under your policy.

Clients want you to have this important insurance because it will protect them if you are negligent and cause them a financial loss. They are trusting you to either provide them with sound advice or get the job done right, and don’t want to be negatively impacted if you make a mistake.

D&O insurance provides protection for directors and officers of an organization against claims arising from the management of the business.

E&O insurance provides coverage for a professional if there is a claim against them from the provision of their professional services.

You'll need Errors & Omissions Insurance if:

• Your company provides a professional service for a fee.
• You have employees who complete contracted work.
• You are the sole proprietor and operator of a service company.
• The services your business offers are complex.
• Your business has a steady stream of clients.
• You have clients that require you to purchase this type of insurance as part of the contract.

The standard Errors & Omissions liability limit for a small business is $1,000,000 in coverage per claim. As sales or company assets grow above $1M your company should start to consider higher limits.

It is also common for larger corporations to expect their professional services vendors to carry $5M or even $10M. This is quickly becoming the standard for larger Technology Errors & Omissions requirements. That policy will often include cyber limits within the coverage.

There is no easy answer as to how much Errors & Omissions insurance will cost due to the vast differences each business can have.

It is always best to work with a professional insurance agent so that you can give them all of the details about your business and they can help tailor the policy to your specific needs.

Some factors that the insurance company will consider when pricing the policy include:

• Your claims history
• How many employees you have
• Your annual revenue
• Policy limits to include coverages and deductibles if applicable
• Experience in the industry, even as a non-owner of a business