The Basics of Errors and Omissions Insurance Explained

March 13, 2023

Errors and omissions insurance (E&O) is a type of professional liability insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions. E&O insurance is important for any business that provides professional services, as it can help protect against claims alleging that the business failed to provide those services correctly.

For example, a client may sue a financial advisor after an investment goes sour, even if the risks were well-known and within the guidelines established by the client. Even if a court or arbitration panel decides in favor of a broker or investment advisor, the legal fees can be very high, which is why E&O insurance is important.

What are examples of professionals or businesses that need errors and omissions insurance?

- Lawyers and Accountants

- Architects and Engineers

- Software Companies

- Insurance Brokers

- Real Estate Agents

- Mortgage Brokers

- Healthcare Professionals

- Doctors, Dentists, Optometrists, Physiotherapists

- Event Planners

How much does Errors and Omissions Insurance Cost?

Average costs for E&O coverage for small business owners can range from $500 to $1,000 per employee, per year. So, if your business has 50 employees, your errors and omissions premium may be between $25,000 and $50,000 annually. Remember that this is only a best guess, the factors listed below will ultimately determine how much you will pay for Errors and Omissions insurance:

  • Business’ size, because depending on your number of employees, you may have higher risks. Small businesses typically have fewer employees and lower rates.
  • Revenue, because more money can come with a higher risk of lawsuits.  
  • Industry and the types of risks you face. For example, a construction company may have a higher than average errors and omissions rate because their mistakes can result in property damage.
  • Employee training, because teaching your employees how to reduce risk can lower your insurance rate.
  • Contracts, because depending on how they’re written, they can either increase or decrease your exposure to liability.
  • Location, especially if you’re in a state with higher minimum coverage requirements.
  • Claims history, because you can expect to pay higher E&O insurance rates if you have a history of lawsuits.
  • Coverage limits, because policies with a higher limit are likely to cost more than policies with lower coverage limits.

What are some examples of Errors and Omissions claims?

- A client alleging that they lost money because of bad advice given by a financial advisor

- An architectural client claiming that they experienced delays and cost overruns because of errors made by the consultant.

- A lawyer being sued for errors made in a legal case.

- A travel agent who booked a vacation for a client which the airline cancelled, and the agent was unable to get a refund

- A nutritionist who prepared a diet plan for a client, which the client believes led to health issues which forced them to take time off work

- A class action lawsuit against a payment processing (technology) company which had an error in their code, resulting in accidentally overcharging clients for 9 months before this was discovered

Errors and omissions insurance is vital for any business that provides professional or technology services. If you are in need of errors and omissions insurance, make sure to work with a specialist broker to get the right policy for your business.

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