Errors and omissions insurance, also known as professional liability insurance, covers claims arising from unintentional mistakes or negligence, typically by businesses that provide advice or professional services. The cost of E and O insurance starts around $400 but can exceed $8,000 annually depending on several factors, such as industry type and coverage limits.
Getting the right errors and omissions insurance policy for your business’s industry’s risks is vital to being properly protected. The Hartford offers a simple online application dives right into not just your industry, but also your specialty, in order to understand your risk. The Hartford’s online application takes just a few minutes to complete and get coverage.
Errors & Omissions Insurance Providers
Errors and omissions insurance providers are usually national small business insurance companies that already insure specific industries with general liability or a business owner’s policy (BOP). Providers vary in pricing, industry coverage, and underwriting requirements, and should have a good understanding of your business operations, the industry you serve, and the likely claims in your industry.
Top Errors & Omissions Insurance Providers
|The Hartford||Individual lawyers and legal offices with more than 20 attorneys on staff.|
|CoverWallet||Service professionals working on residential homes such as plumbers or landscapers.|
|The Doctors Company||Medical doctors ranging from family practitioners to specialized surgeons and support providers.|
|AIG||Consultants and IT professionals serving other businesses in a wide variety of industries.|
|Hiscox||Health and beauty professionals and other practitioners working directly on a client’s body.|
Five errors and omissions insurance providers to consider include:
1. The Hartford
The Hartford is a national insurance carrier that provides excellent small business insurance policies that set the standard for commercial insurance coverage. Most policies have extended coverage included for no extra cost, while other carriers force these as paid riders. The Hartford takes the time to evaluate industry needs and develop the right coverage for business owners.
The Hartford is an ideal choice for legal professionals, including attorneys, notaries, paralegals, and estate planners. The Hartford has a two programs designed for attorneys contingent on the office size to properly assess and address the risk.
CoverWallet is an online insurance broker serving small businesses in all 50 states. With proprietary technology, CoverWallet is able to effectively walk a business owner through the application process quickly while still offering the personal touches of human customer service representatives.
CoverWallet is an excellent choice for service businesses that work directly with consumers in their homes, such as plumbers, electricians, handymen, and landscapers. Risks change when you work on someone’s home that can lead to long-term residual risk of errors resulting in loss. CoverWallet understands this and has the top-rated partners to provide the specific coverage needed for service industries.
The Doctors Company is a specialized insurance company that caters only to doctors and medical providers. It is the largest malpractice insurer owned by doctors in the nation. The Doctors Company offers most types of liability policies medical providers need, including general liability, employment practices liability insurance (EPLI), and cyber insurance.
The founding product for The Doctors Company is malpractice for doctors and surgeons. This insurance provider offers policies with the doctor in mind and understands the highly litigious nature of mistakes in the medical field. There are discounts for medical providers who are active members of many professional organizations, including The American College of Surgeons and The American Association of Neurological Surgeons.
AIG, one of the largest insurance carriers in the world, has the ability to write every policy any small business owner needs, even with highly specialized underwriting guidelines. Because AIG insures major corporations globally, it is uniquely positioned to understand the risks to all businesses with cybersecurity and data breach.
AIG is the right choice for small businesses that provide technology solutions that help other businesses develop and secure digital infrastructures. Errors in this field can lead to significant regulatory issues for clients who have data breaches. AIG understands that technology risks to businesses are greater than ever, and has developed professional liability policies to address modern risks for IT providers.
Hiscox is a small business insurance specialist focused on using technology to assist small business owners in efficiently and cost-effectively obtaining the right insurance to protect their business assets. Hiscox specializes in independent contractors and sole proprietors with 10 or fewer employees.
Hiscox is a good fit for health and beauty professionals who perform services such as esthetician, beautician, or massage services. Hiscox also has a large appetite for trainers and holistic practitioners recommending supplements and non-medical health advice.
What Errors & Omissions Insurance Is
Errors & omissions insurance (E and O) protects businesses and professionals who provide advice or services to clients for a fee. E and O insurance covers legal defense costs and settlement claims, up to policy limits, on claims accusing you of mistakes, negligence, or bad advice. Intentional acts and fraud are not covered in an E and O policy.
“E and O protects professionals from negligent acts or subpar performance in their work. These acts would not typically be covered by commercial general liability because the actions of a professional are specifically excluded by most commercial general liability policies. However, E and O does not indemnify you from intentional acts, but it might defend you against the allegations of the claim.”
– Christopher Morea, Agency Director, Morea Agency
Not every business needs errors and omissions insurance, but any business that provides a service to a client for a fee should consider buying coverage. The most common professions that may need E and O insurance include accountants, architects, IT businesses, doctors, and lawyers. However, even tutors, athletic coaches, and electricians can benefit from an errors and omissions policy.
Here are some of the professionals that may need errors and omissions insurance:
- IT Business
- Doctors (referred to as malpractice insurance)
- Personal trainers
The common thread tying together all professions that should consider purchasing an E and O insurance policy is providing a service to customers for a fee. Just about anyone who has a license as well as anyone who provides a service to consumers for a fee should consider an errors and omissions policy.
Errors & Omissions Policy Claims Made
If an errors and omissions policy is written as a claims-made basis, claims can be covered during the policy period for acts that happened before the policy started. This is also known as “prior acts coverage” in some policies. As long as the policy is in force when the claim is made and the prior act happened within defined claims periods, it will be covered.
This type of policy also includes tail coverage that is an extended coverage period for claims reported after the policy term but reported when the policy was in force. This is a more expensive option requiring proof of any loss history on previous policies or claims against the company.
Errors & Omissions Policy per Occurrence
A less expensive errors and omissions coverage option is the per occurrence option. This means that the policy will only cover claims that occurred during the policy term. If tail coverage exists, the claim can be made after the policy terminates, but the claim incident must have occurred while the policy was in full force.
An example is if a tax preparer has a policy for 20 years before retiring and he made an error on a client’s return resulting in a $50,000 tax liability that is discovered after he retired and canceled all pertinent insurance. As long as his errors and omissions insurance policy had a tail coverage clause, the client’s claim is covered by the policy even though it is no longer in force.
What Errors & Omissions Insurance Covers
E and O protects businesses against claims arising from their mistakes, negligence, or failure to deliver promised services. The covered unintentional acts include misrepresentation, giving incorrect advice, and violations of good faith. This policy allows professionals to make occasional unintentional human errors without considerable financial exposure to the business.
E and O insurance covers unintentional negligent acts, including:
- Misrepresentation: Products, services, or features are not delivered as promised.
- Giving incorrect advice: Client profits are lost or other costs incurred resulting from incorrect advice.
- Violation of good faith: Any act of noncooperation with a client, such as withholding information or failure to communicate.
Consumers can make a claim whether there is legal basis or not, and a lot of frivolous lawsuits are filed every year. Businesses that don’t have E and O insurance must bear the cost of a legal defense or pay a settlement whether or not you are in error.
Depending on your particular policy, you may also have the following acts covered:
- Copyright infringement: Be it written material, logos, trademarks or software code, E and O insurance can protect you from claims of copyright infringement.
- Defamation: Some policies can cover accusations of written (libel) and spoken (slander) defamation, such as if you posted a blog article that makes negative accusations about a competitor.
The E and O insurance can pay settlements up to policy limits, and some policies don’t include defense costs in those limits. That means a $1 million policy limit could pay a $1 million dollar settlement plus legal fees above this limit.
What Errors & Omissions Insurance Does Not Cover
Plain and simple: errors and omissions insurance does not cover intentional acts of omission, negligence, or fraud. If evidence surfaces that an act of negligence was intentional (e.g., an email that outlines a plan to defraud customers by selling them a nonexistent feature), this would be considered a criminal offense not covered by E and O insurance and subject to civil and criminal penalties.
E and O insurance typically does not cover the following situations:
- Intentionally illegal, dishonest, or malicious acts: Knowingly doing something wrong disqualifies claims.
- Bodily harm or damaged property: Third party slip-and-fall or other incidental accidents are covered by general liability insurance instead.
- Internal litigation: Lawsuit from another insured person on your policy. For example, if another member of your business sues you, it would be covered by directors and officers (D&O) insurance instead.
- Previously claimed wrongful acts: Claims reported under a previous policy that were denied.
Remember that depending on the policy you purchase, you may be covered for prior acts, something that happened before the policy start date. If you have a retroactive date, this provision essentially covers the business when it wasn’t insured, going back to the defined “retro date.”
E & O Insurance Claim Example
Consider a plumber who is hired to do the annual maintenance on the underground plumbing system connecting a home to the public sewer. This service might cost $159 to flush the pipes of gunk and clean them to prevent unwanted backups. If the technician accidentally uses too much pressure and a pipe bursts under the home’s foundation, the resulting loss could be valued at $100,000. This is not covered by general liability since it directly resulted from the job activity being done and is only covered by professional liability insurance.
Errors & Omissions Insurance Costs
Errors and omissions insurance costs vary widely depending on the industry you work in and the amount of annual revenues you generate. A typical small business can expect to pay anywhere from $400 to $1,000 in annual E and O insurance premiums. Remember that insurance carriers price industries differently, so it is wise to compare errors and omissions insurance among top carriers.
Typical E & O Insurance Cost Examples
|Service Provider Type||Annual Cost|
|Real Estate Agents||$2,000|
Factors Affecting Errors & Omissions Insurance Costs
E and O insurance costs are difficult to estimate because they are based on industry risk and the size of the company based on revenue. The more revenue a company has, the more exposure it has because it does more business. More business leads to a chance that a mistake might be made inadvertently over time.
The primary factors affecting the cost of E and O insurance include:
- Industry: Higher risk of lawsuits increases premium. For example, architects may pay more than $1,500 per year in premium, whereas financial services businesses average $500 per year.
- Size of business: Higher revenue and a larger number of employees increase your risk of liability claims, which will push costs of E and O insurance higher.
- Location of business: The frequency and expense of lawsuits tends to be higher in some locations than others. For example, a lawsuit in New York is typically more expensive than one in Oregon.
- Claims history: Previous claims on E and O insurance increases rates in subsequent years.
- Procedures and quality control: Protocol such as employee training and customer satisfaction surveys can reduce your chances of a claim. With lower risk of claims, insurance providers may offer premium reductions.
Errors & Omissions Insurance & Other Business Insurance
Errors and omissions insurance alone doesn’t properly protect a business against the most common risks. Small business owners should have a combination of insurance products that address specific risk needs in the company. General liability insurance, workers’ compensation, and product insurance are other commonly purchased policies with errors and omissions insurance.
Other types of insurance small business owners may need include:
Commercial General Liability Insurance
Commercial general liability insurance covers third-party liability claims for bodily injury, property damage, and related medical bills or legal costs. Slip-and-fall accidents are one of the most common general liability claims a small business will face, but may also include accidental property damage by spilling coffee on a laptop or expensive purse.
Commercial Business Property Insurance
Commercial property insurance covers a business for its own property, including furniture, tools, equipment, and supplies. If any of these items are damaged or destroyed due to fire, theft, vandalism, or natural disaster, the insurance company pays to repair or replace them. Business property insurance is critical to maintain business operations if needed equipment and supplies are lost.
Workers’ Compensation Insurance
Workers’ compensation insurance covers employees injured while on the job. Workers’ comp is required in most states for business owners with one or more employees, and pays medical bills, wages from lost work time, and rehabilitation services for injured employees to help them get back to the job.
Commercial Umbrella Policy
A commercial umbrella policy adds extended liability coverage to all liability policies in force. This means general liability, errors and omissions, workers’ compensation, and commercial auto liability limits are increased with one policy. It is a cost-effective method to add protection for one unforeseen catastrophic loss.
Business Owner’s Policy
A business owner’s policy (BOP) combines general liability, business property, and business interruption coverage into a hybrid commercial insurance policy. A BOP is often less expensive than buying each policy type individually or as a monoline policy. BOPs don’t cover commercial auto or workers’ comp liabilities or losses.
Tips on Getting Errors & Omissions Insurance
The application process for most types of small business insurance is the same in terms of the process of getting multiple quotes, choosing an insurance provider, and purchasing the policy. But when applying for errors and omissions insurance, it’s wise to address a few key points that are unique to the coverage.
Four key points to keep in mind when applying for errors and omissions insurance include:
1. Gather the Right Documents
Collect all pertinent paperwork for the errors and omissions insurance application, including current profit and loss and revenue statements, company legal registration paperwork, and all current written contracts and operations manuals. Insurance carriers use this data to determine the right errors and omissions insurance premium.
2. Decide Between Claims-made Coverage & Retroactive Coverage
Most E and O policies are made on a claims-made basis, which means that in order for a claim to be paid, your policy must be active when the alleged incident first happened and when the claim is filed. Confirm how any potential policy pays claims and for what time periods, including retroactive dates and tail coverage periods, to completely understand what type of coverage you are paying for.
3. Always Have a Written Contract of Services
One of the questions every insurance carrier asks on the application is, “Do you always use a written contract of services?” Using a written contract clearly outlines the expectations and deliverables of any service provider and is legally binding, and thus helps refute unfounded claims against your professional service. Insurance carriers may ask for a copy of standard company contracts.
4. Don’t Ignore Other Risks
Since no E and O insurance policy covers every risk, it’s important that you review the policy with your agent or prospective insurance provider to make sure you understand what’s included and what’s not included (the exclusions). Consider general liability, cyber liability, or product liability insurance as needed by your business operations.
Errors & Omissions Insurance Frequently Asked Questions (FAQs)
Errors and omissions insurance is a very important insurance policy that is often not given the consideration needed by service professionals. If, after reading this article, you have questions about errors and omissions liability, please visit our forum or drop us a comment below. Our mission is to give the best answers to your questions.
Is errors & omissions insurance included in general liability?
Errors and omissions is a specialized liability policy that is not combined with general liability because it is designed to cover professional acts of error, not operational accidents leading to third-party injuries or damage. Those seeking professional liability need to specifically request the coverage and obtain a policy to protect their specific business needs.
What is the retroactive date on a claims-made policy?
The retroactive date is the specified date coverage starts before the policy inception date. If a business owner experiences a lapse in coverage for any reason, a claims-made policy can fill the gap of noncoverage with the retroactive date. The farther the retroactive date goes, the more expensive the policy.
What is the extended reporting period?
An extended reporting period (ERP), aka tail coverage, pays claims that happened during the policy period but are reported after the policy is canceled or not renewed. Businesses can’t control when claims are reported and if no coverage exists at the time of the claim, the business is responsible. The ERP mitigates this extended risk.
An errors and omissions policy protects professionals and service providers from claims and losses arising from mistakes in job performance or delivery. Even if a claim is frivolously made by a disgruntled customer, having the insurance pays for not just any settlement, but also the legal defense to defend your good name.
Don’t risk your reputation or let honest errors lead to a financially devastating claim against your business. Errors and omissions insurance is a cost-effective way to protect yourself and your business. The Hartford makes getting a policy simple with a five-minute online application that reviews your risks and gets the policy written quickly.