Imagine you’re a real estate agent who just sold a young, married couple their first home. The closing goes smoothly, but a month later, you’re hit with a lawsuit from the couple. They allege you withheld information from the listing about water damage in the basement and they now have to pay thousands of dollars to rid the house of mold. To recover their losses, they try to get their money back by suing you.
These types of lawsuit-related costs are not covered under a standard businessowners policy (BOP). Certain businesses, especially those who provide a service to clients for a fee, need additional coverage known as errors and omissions insurance, or E&O insurance.
E&O Insurance Policy Basics
People make mistakes; it’s simply part of human nature. However, if a mistake at work such as typo or oversight in a document, a missed deadline or another form of accused negligence causes a client to sue, errors and omissions coverage can help protect a business from legal fees associated with the lawsuit.
Being caught in the middle of a lawsuit with a dissatisfied client can cost a business thousands of dollars and may not only cause financial hardship – it could close the business’s doors altogether.
E&O insurance is also known as professional liability insurance. It is designed to protect a business from the consequences of an error or omission made by the owner or an employee.
What does E&O insurance cover?
The following features are generally included in an errors and omission policy:
- Legal fees: An E&O policy will cover legal fees and related expenses such as attorney fees, court and administrative costs, judgments, settlements and defense costs up to the limit of the policy.
- Claims and damages: An award, generally in the form of money, will be given as compensation for a loss or injury in a claim for damages. This includes not only financial damage but also intellectual and emotional distress, too. An E&O policy covers claims for monetary damage, which could be key in the financial stability of a business for the long term.
- Claims for past services provided: In some cases, E&O coverage can be provided back to the business’s start date. This means the business will be covered for claims made after work was completed on a project, even if the project was completed prior to signing up for the policy. However, it’s always best to get E&O insurance before an incident occurs.
- Copyright infringement: Many businesses safeguard their material by registering for copyright protection. When exclusive work is used by a third party without permission, this can lead to copyright infringement. Even when a business has the best intention to comply with copyright laws, mistakes and oversights may still occur and result in a lawsuit.
- Alleged or actual negligence: When an individual or an organization fails to show reasonable care in their actions and harm falls upon another party, this is known as negligence. Negligent acts in professional services include missing deadlines, making errors, omitting information or providing incorrect advice. E&O insurance covers the expenses related to the claim and any relevant damages resulting from it.
- Temporary staff and independent contractors: Many businesses rely on temporary staff members or independent contractors, especially as workloads can fluctuate at different points throughout the year. These types of employees may be more prone to making errors that could result in the business being sued.
- Personal injury such as libel or slander: Libel refers to untrue comments made in writing, while slander occurs when a false accusation is made orally. Claims of both libel and slander, whether they are legitimate or not, can have a negative impact on a business by resulting in costly legal expenses.
An E&O policy would not include coverage for:
Who needs E&O insurance?
- Employee injuries
- Customer injuries
- Property damage
- Discrimination lawsuits
- Personally identifiable information (PII)
- Company vehicles
Companies who provide a service for a fee should have errors and omissions insurance, as it covers situations that traditional business liability insurance will not. For instance, business professionals like the aforementioned real estate agents, lawyers, insurance-related professionals, financial broker dealers and other types of service firms, as well as architects, designers and medical professionals should consider purchasing an errors and omissions insurance policy.
How much does E&O insurance cost?
Like any other insurance policy, the cost of E&O coverage is dependent upon several factors and will vary for each individual business. Industry type, location, number of employees, number of claims filed and coverage limits will all determine how much an E&O policy will cost.
It’s important to keep in mind that E&O insurance only covers certain economic losses. Businesses should also consider a businessowners policy
that combines general liability and property insurance, workers’ compensation
to cover employee injuries, cyber liability
coverage for incidents like data breaches, and employment practices liability insurance (EPLI)
for employment-related claims like sexual harassment charges or discrimination.
AmTrust E&S Pro – Niche Insurance Solutions for Professionals
AmTrust E&S Insurance Services, Inc.
is an excess and surplus underwriter of specialty insurance products in the casualty market. AmTrust E&S Pro
focuses on errors and omissions insurance for lawyers, insurance-related service professionals, financial broker dealers and other miscellaneous service firms. Our small, focused and experienced underwriting team is comprised of industry leaders who are adept at understanding, handling and supporting complex accounts. For more information, please contact us
This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.