What is errors and omissions?
Errors and Omissions (E&O) insurance is supplementary liability insurance that enhances any business owner’s policy by safeguarding against catastrophic loss in the event of a lawsuit due to a negligent act, error or omission by the professional. In addition to claims of error, omission, or negligence, E&O insurance can also protect against slander, libel and breach of contract.
E&O policies cover large legal defense costs incurred when trying to prove liability or innocence. They also ultimately cover the final judgment if the business owner does not win the lawsuit.
Does my business need E&O coverage?
It is appropriate coverage for anyone who gives advice, makes educated recommendations, designs solutions, or represents the needs of others. Service professionals, such as accountants, computer consultants, software developers, planners, architects, real estate agents, contractors, etc., are prime candidates for carrying E&O insurance.
What does E&O cover?
E&O coverage kicks in where your Commercial General Liability policy does not provide coverage, such as for service errors, contract performance disputes or any other professional liability issues. These policies also include defense costs, which can be quite substantial even if liability is not found. Policies typically do not provide coverage for non-financial losses or for intentional or dishonest acts.
E&O policies generally have both a claim limit and an annual limit, which is based on the insured’s exposure. The claim limit is the maximum amount that will be paid for any single event, and the annual limit is the maximum that will be paid in any one year. Typical limits range from $250,000/$500,000 to $2 million/$4 million and differ depending on the type of business.
Specialized E&O coverages
Specialized forms of E&O coverage are also available to professions such as appraisers, real estate agents, insurance agents, home inspectors and notaries. Policies are designed to cover the large legal defense costs that are incurred trying to prove liability or innocence. They also ultimately cover the final judgment if the business owner does not win the lawsuit.
Tech E&O protects your business in the event that a third party suffers a financial loss due to your product or service not performing as it was intended or expected, including the event of an error or omission committed by your company. Tech E&O coverage would apply in the following situations:
- A mistake was made and an error in the code of a website or program your company produced isn’t found before it is implemented. A third party depends on this product or service to operate its business and its operations are stalled due to the error, causing them a financial loss.
- A part your company produces is installed in a piece of equipment. After a short amount of time, the component simply stops working, causing the equipment to fail to work, but otherwise not damaging anything or hurting anyone. The third party that relies on this equipment for its business has to stop operations and suffers a financial loss.
- One of your employees recommends that a client adjust its network. The client follows the advice and its network crashes as a result, causing a time and financial loss for its operations.
General Contractors E&O
General contractors are particularly vulnerable to claims of negligence following unintentional damage to an insured party, impairment of property, damage to products or similar incidents that can occur without warning during a construction project. E&O policies can help contractors close gaps in their insurance coverages, providing coverage for claims related to the following:
- Failing to deliver promised services
- Negligence in providing professional services
- Poor, incorrect or incomplete work
- Errors and oversights
Manufacturers E&O is professional liability insurance that covers a manufacturing mistake or negligent service that results in a third party financial loss without bodily injury or property damage. E&O insurance covers damages that result from the following:
- Poor, incorrect or faulty products that are manufactured, handled, sold or distributed
- Errors and omissions caused by material defect, including property damage to the product, property damage to the work and property damage to impaired property
- Negligence or failure to deliver promised services
More management liability coverages
Directors and officers (D&O)
Covers losses caused by a director or officer’s alleged mismanagement or improper conduct.
Employment practices liability (EPLI)
Covers losses resulting from employment practices disputes, such as claims filed for discrimination, sexual harassment and wrongful termination.
Covers losses resulting from mismanagement of employee benefit and pension plans.