Errors and Omissions
A form of professional liability insurance covering claims of negligent acts, errors, or failures to perform professional services.
What It Is
Errors and Omissions (E&O) insurance is a specific type of professional liability coverage that protects professionals and businesses against claims alleging negligent acts, errors, or omissions in the performance of professional services. The terms 'E&O' and 'professional liability' are often used interchangeably, though E&O is more commonly used for service-oriented professions while 'professional liability' or 'malpractice' is used for licensed professions like medicine, law, and accounting.
E&O coverage responds to claims of financial harm caused by the professional's failure to exercise the standard of care expected of their profession. Common covered claims include: negligent advice, failure to deliver services as contracted, mistakes in professional work product, missed deadlines causing financial harm, and misrepresentation of professional qualifications.
E&O policies typically include both indemnity coverage (payment of damages) and defense coverage (legal costs to defend against claims). Most E&O policies provide defense costs within the policy limit (eroding), though some newer forms offer defense outside the limit. The coverage usually includes regulatory proceeding coverage, disciplinary hearing coverage, and sometimes subpoena response costs.
Why It Matters for Brokers
E&O exposure exists in virtually every professional service business, yet many businesses do not carry E&O coverage until after a claim occurs. Brokers who proactively identify E&O exposure and place appropriate coverage prevent financial devastation for their clients. E&O claims are becoming more frequent and more expensive, driven by increased litigation, higher client expectations, and the growing complexity of professional services.
Real-World Example
An IT consulting firm implements a new ERP system for a manufacturing client. A configuration error causes the system to miscalculate inventory levels, resulting in $430,000 in excess raw material purchases and $195,000 in lost production from missing components. The manufacturer sues the IT firm for $625,000 in damages plus legal costs. The IT firm's $1M E&O policy covers the $625,000 in damages and $110,000 in defense costs. Total claim: $735,000. Without E&O coverage, the IT firm—a 12-person company with $2.4M revenue—might not survive the loss.
Common Mistakes
- 1Not recommending E&O for technology companies, consultants, and service providers who do not consider their work 'professional' but face significant E&O exposure.
- 2Failing to match E&O policy limits with contractual requirements—many client contracts require specific E&O limits that must be verified.
- 3Not reviewing E&O policy exclusions for the specific types of services the insured provides—an E&O policy may exclude the exact service that creates the claim.
How brokerageaudit.com Handles This
brokerageaudit.com's Policy Checker verifies E&O coverage for all professional service accounts and cross-references policy limits with contractual requirements stored in the account file. The COI Manager tracks E&O certificate requests and verifies that certificates accurately reflect the policy's retroactive date and coverage scope. The system also flags E&O policies approaching renewal to ensure no lapse in claims-made coverage.