Errors and Omissions Insurance: Who Needs It and Why It’s Important

Everyone makes mistakes, but even one lawsuit can put your business in serious financial trouble.

That’s why many service-based businesses rely on errors and omissions (E&O) insurance, which helps protect against claims of mistakes, missed deadlines, or negligence. This liability coverage can pay for court costs, damages, settlements, and other legal fees from a lawsuit.^[1]

Even well-run businesses can face unfounded claims, and having E&O insurance can cover defense costs while protecting your professional reputation.

Let’s look closer at how E&O insurance works, what it covers, and whether you need it for your business.

What is errors and omissions insurance?

E&O is a type of professional liability insurance that can protect your business if a client sues over a mistake, oversight, or failure to deliver promised services.

It could help if you or an employee misses a project deadline, provides inaccurate information, or makes an error in a contract, causing a financial loss for a client and prompting a lawsuit. Without E&O insurance, you might have to pay court costs, attorney fees, damages, or settlements out of pocket.

If you have this policy, though, you can file a professional liability claim to help cover these expenses. Exact coverage depends on your insurance policy terms, limits, and endorsements.

E&O ultimately provides a financial safety net and supports your business’s overall risk management.

Who needs E&O insurance?

Any business providing professional services to clients, such as advice or deliverables, should strongly consider E&O insurance.

Mistakes can happen to anyone, so it’s important to protect yourself from potential legal repercussions. Some U.S. states may even require professional liability insurance, like an E&O policy.

Here are some common examples of professionals who may benefit from this coverage:^[2]

• Accountants

• Consultants

• Designers

• Home-based businesses

• Information technology (IT) professionals

• Real estate agents

Why E&O insurance is important

Legal battles can take a serious toll on your business’s finances, jeopardizing assets and future earnings. Court costs, damages, and other expenses from a single lawsuit can be so high that some companies may close or file for bankruptcy.

By purchasing errors and omissions insurance, you can have financial protection against:

• Attorney fees

• Damages

• Reputational harm

Even unfounded claims can be expensive to resolve. If the accusation is false, E&O insurance could provide the resources to protect your business’s reputation. Though some companies may choose to settle (which E&O may cover) to avoid the stress, expense, and time commitment of litigation.

What E&O insurance covers

E&O insurance provides liability protection for claims of negligence, misrepresentation, or mistakes in professional work, such as:

• Alleged professional mistakes: A client could sue you for an error, like giving incorrect advice or misrepresenting their company.

• Missed deadlines or deliverables: Failing to deliver services on time could hurt your client’s bottom line and prompt a lawsuit.

• Breach of contract: Legal agreements can be complex. If you accidentally violate your contract, E&O might offer financial protection.

• Failure to meet standards: E&O insurance may cover court costs if a client alleges you didn’t meet the standards for a project.

• Court costs: Professional liability insurance might reimburse you for filing fees, subpoenas, transcription fees, and administrative costs.

• Defense costs: Even if a claim is baseless, E&O could help with attorney fees, expert witness fees, and other expenses for legal defense.

• Settlements: Sometimes, litigation may not be worth it. E&O could reimburse you for a settlement to keep a dispute out of court.

• Damages: If you lose a legal battle, E&O can help cover damages up to your policy limits.

What E&O insurance doesn’t cover

Although E&O insurance can protect your business from legal trouble, it doesn’t completely eliminate the risk. For example, these are some common exclusions:

• Intentional wrongdoing or fraud: This coverage generally doesn’t apply to claims involving dishonesty, crime, or intentional misconduct.

• Bodily injury/property damage: Lawsuits from client injuries or property damage typically fall under business liability insurance, not errors and omissions insurance.^[3]

• Employment practices liability insurance (EPLI): For coverage against potential lawsuits from current, former, and potential employees, you’ll need an EPLI insurance policy.^[4]

• Cyberattacks: If your business suffers a breach of customers’ data, cyber liability insurance may cover lawsuits and fines.^[5]

• Patent infringement: Intellectual property insurance, not E&O, protects against claims that you infringed on someone else’s patent, copyright, or trademark.

Where to get E&O insurance

You can purchase business coverage (including an E&O policy) through insurance companies, independent agencies, specialty insurance programs, or a reputable insurance group. A licensed professional can give you insurance advice to help you select the right coverage for your business.

Whichever route you choose, always compare quotes, coverage options, and policy terms from multiple insurance companies to ensure you get the most protection for the best price.

You’ll typically complete a detailed application form when applying for a policy. Your insurer may review your claim history to decide your eligibility, premiums, and coverage determinations.

E&O insurance cost

E&O insurance could cost between $40 and $75 per month, but rates vary significantly. In 2024, Progressive reported a median monthly cost of $42, while The Hartford’s customers paid around $76 each month, on average.^{[6] [7]}

Premiums depend on factors such as:

• Industry and risk level

• Business size and revenue

• Claim history

• Chosen deductibles and coverage

Industries with greater liability exposure, such as finance and healthcare, often pay higher premiums. As part of their risk-management strategy, they may also need additional business insurance policies (for example, malpractice insurance for doctors) for situations not included under E&O.

How to file an E&O insurance claim

If you have any insurance issues, like a client filing a complaint, notify your insurer as soon as possible to comply with your policy terms. Here are the steps you should take:

• 

  1. Gather documentation

  Collect any contracts, emails, invoices, correspondence, and records that support your claim.

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  2. Contact your insurance company

  Notify your insurance services company or agent promptly. Many professional liability policies are claims-made, meaning coverage only applies if the policy is active both when the incident occurs and when the client files the claim.

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  3. Complete a claim application form

  Fill out all required forms, including your personal information, policy number, and incident details. The insurer will use this information to determine whether your claim falls under your policy provisions.

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  4. Await decision and potential claim payment

  Cooperate with your insurer, claims adjusters, and legal representatives. The insurer will review your policy language, investigate the situation, and notify you if it approves your claim payment.

E&O insurance FAQs