Even the most careful business owner can make a mistake when dealing with clients, drawing up paperwork or creating a treatment plan. Unfortunately, even a small mistake can result in a client suing you for negligence or malpractice. These types of lawsuits can quickly add up to thousands of dollars in attorney fees, even if a judge decides not to award your former client or customer any type of judgment. Luckily, having the best errors and omissions insurance can offer you protection from legal liability.
What is Errors and Omissions Insurance?
Errors and omissions (E&O) insurance is a type of professional liability business insurance that protects you against the costs you incur defending your business from lawsuits accusing you of negligence. E&O insurance is a must-have for any business that provides professional advising services or medical care.
If you don’t already have E&O insurance, our guide will help you learn more about why this coverage is so important. We’ll also introduce you to a few of our favorite business insurance providers offering comprehensive E&O policies.
What is E&O Insurance?
E&O insurance is a type of professional liability insurance policy that helps cover costs you incur when a client or patient accuses your business of negligence and sues you. Most E&O policies include 2 areas of coverage:
- Legal expenses: This coverage includes the cost of hiring an attorney to defend you against claims of negligence or malpractice in court.
- Court-ordered judgments or damages: If a court rules in favor of the party suing you, you may be ordered to pay damages to your client or customer. Your errors and omissions insurance will usually help you cover the costs of any damages awarded against you.
E&O insurance is a crucial protection for any business that provides professional services to clients. In some cases, you may be required to carry a certain level of this coverage — for example, if you’re a surgeon, you might need a certain level of malpractice insurance.
Best Providers for E&O
Most companies that provide business insurance offer some form of E&O coverage. This means that you’ll have your choice between multiple reputable providers when you select a policy. Not sure where to begin your search? Start by getting quotes from a few of our favorite insurance providers below.
What Does an Errors and Omissions Policy Include?
E&O coverage can protect you from a wide range of lawsuits. Some examples include:
- Mistakes and oversights in your advice or work: Even a minor error can result in serious losses for your clients. If you make a mistake in a client’s paperwork or you advise them in a way that they believe didn’t convey all of the risks of an investment, the client may sue you for negligence. In these instances, your E&O coverage would help cover your legal expenses.
Imagine that you’re a real estate agent. You show a client property and tell him that the property contains 1,000 square feet. The client purchases the property then measures the space and finds that it only contains 950 square feet. If the client sues you for failing to provide correct information, your E&O insurance would help cover the cost of your legal defense and any court-awarded judgments.
- Undelivered services: If your client orders or purchases a service and you fail to deliver, that client might sue you for a full refund plus any additional expenses they incurred correcting your mistake. E&O insurance may compensate you for legal expenses and court-ordered judgments in this area.
Say that you’re a travel agent booking a trip for your client to Cabo. Your purchase a flight on behalf of the client, which is canceled on the morning of her flight. You aren’t able to make alternate arrangements in time and the client sues you for the full cost of their missed vacation. Your E&O insurance would help cover your legal costs in this circumstance.
- Accusations of negligence: If you provide a service to a client that suffers a breach or unexpected damage, the client might sue you for negligence. Your E&O policy would help defend you against these claims.
Imagine that you’re a data storage company. A client contacts you for help in storing their patents and copyright information. Your data center suffers a breach, which causes losses to the client. If the client sues you for data mismanagement, your E&O insurance helps you cover court-awarded judgments and legal expenses.
Cost of Errors and Omissions Insurance
The price you’ll pay for your errors and omissions insurance varies depending on the nature of your business, the types of services you provide, your current client list and much more. Some of the biggest factors that influence what you’ll pay for your policy may include:
- Your current payroll: The larger your company and the more members of staff you employ, the more likely your business is to make a costly mistake that results in a lawsuit. Expect that your insurance costs will rise as your payroll increases and you add more full-time and part-time employees to your business.
- Your business’ revenue and client budgets: The more money your business brings in, the more likely you are to be on the receiving end of an expensive lawsuit. Expect your insurance premiums to rise as your business revenue and average client spending increases.
- Your industry: The type of industry you work in affects your risk as a client. For example, if you’re a lawyer, you might be working with million-dollar contracts and settlements, which can mean a massive lawsuit if you make a mistake. On the other hand, if you operate a tutoring business, your business sees much less risk of financial loss. This means that the amount you’ll pay for your policy will vary based on the unique risks associated with your line of work.
- Your location: Depending on your location and the type of business you run, you may need to maintain a certain level of E&O coverage to keep your business functioning within the law. If you operate your business in an area where coverage minimums are higher, you’ll pay more each month for your policy.
- Your claims history: If your business has been sued for negligence in the past, you’re statistically more likely to be sued again when compared to a business that has never been in court. If you have a lawsuit on your history or you’ve filed an E&O claim, you’ll pay more for insurance.
Errors and omissions insurance can quickly become expensive. Here are a few methods you may be able to use to save on your coverage.
- Change your payment schedule to a single due. Are you able to pay your entire year’s premium upfront? Paying the full year of premiums shows your insurance provider that you’re able to cover your expenses and that they won’t need to worry about missing payments. Many insurance companies offer discounts for business owners who pay their premiums in-full.
- Keep your coverage current. Maintaining continuous coverage doesn’t only protect your business — it also tells insurance providers that you’re serious about taking steps to prevent mistakes and loss. Avoid cutting costs and keep consistent coverage to save on your insurance over time.
As a general rule, you can expect your errors and omissions insurance to equal about $500 to $1,000 per employee, per year. This means that if you own a business with 10 employees, you can expect to pay between $5,000 and $10,000 per year for your E&O insurance coverage. However, if you own a small business or a single proprietorship, you’re likely to pay between $500 and $1,000 for 1 year’s worth of coverage.
What Types of Businesses Need an E&O?
Any type of business that provides professional recommendations, advice or services can benefit from a comprehensive errors and omissions policy. Some examples of professionals who may see the biggest benefits include:
- Doctors, surgeons, nurses and other medical professionals
- Real estate professionals, attorneys and anyone who creates contracts for clients
- Travel agents
- Construction professionals
- Media and advertising agencies
- Anyone involved in the sale of creative works or content
E&O insurance isn’t required coverage for most industries. Unlike workers’ compensation insurance and commercial auto insurance, there are few professions that require you to carry a certain level of errors and omissions insurance.
There are exceptions to this rule. Process servers, real estate professionals and corporate investors are required to maintain some level of E&O insurance in many states due to industry regulations. These specific coverage minimums can vary by location and profession, so be sure to speak to an insurance expert who’s well-versed in local coverage before you select a policy.
Finding the Coverage Your Business Needs
As a business owner, you can never predict when you or an employee might make a costly mistake with a client’s paperwork or contract. Maintaining continuous errors and omissions insurance is a safe and responsible way to ensure that you’ll have support if a customer accuses you of negligence.
If you don’t already have a policy in place for your business, start by collecting a few quotes above from our providers of choice. Simply enter your ZIP code to begin exploring options and policy providers near you.
Frequently Asked Questions
Questions & Answers
While your errors and omissions insurance offers a wide range of coverage, it won’t cover things like intentionally doing something illegal or knowingly doing harm. It also doesn’t cover employee injuries or lawsuits (you’ll need worker’s compensation for that) and it doesn’t cover business property damage, though a general business policy or commercial property insurance will offer you coverage there.
Yes, your E&O policy will cover you if you’re accused of libel, slander or defamation in a lawsuit related to your professional duties.