ERRORS  & OMISSION LIABILITY

Liability protection for advice and services

Because no one is perfect, and in an organization full of real people, mistakes can happen.

Key Takeaways

  • Errors and omissions insurance is a form of professional liability insurance.

  • E&O insurance protects companies and professionals against claims of inadequate work or negligent actions made by clients.

  • Anyone who provides a service requires E&O insurance including financial services, insurance agents, doctors, lawyers, and wedding planners.

What Is Errors and Omissions Insurance?

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.

Errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract. This kind of liability insurance is generally required for professional advice-giving or service-providing businesses.

Who Needs Errors and Omissions Insurance?

Insurance brokers, insurance dealers, registered investment advisers, financial planners, and other financial professionals can obtain E&O insurance. Regulatory bodies, such as the Financial Industry Regulatory Authority (FINRA), or company investors often require E&O insurance.

E&O insurance is also applicable to businesses outside the financial industry including nonprofits, general maintenance companies and contractors, and engineering firms. Any other company or professional who provides a service such as wedding planners and printers also need E&O insurance. Doctors, dentists, and other medical professionals also take out E&O insurance called malpractice insurance.

A person or company with numerous litigation problems has a higher underwriting risk and is likely to find E&O insurance more expensive or less favorable in its terms as a result.

Example of Errors and Omissions Insurance

Without E&O insurance, a company is liable for millions in damages plus the fees associated with a legal team.

Let's say a company that hosts servers used by third parties for data purposes is breached by hackers who gain access to proprietary information and client data. The companies affected by the hack then sue the server-hosting company for damages for inadequate security. The server-hosting company has an E&O insurance policy and reviews it to see what the policy does and does not cover. To the company's benefit, its errors and omissions policy is robust and covers such situations. The insurance company pays for the legal expenses involved in the court case against multiple companies. It also pays for any monetary damages rendered by the courts or settled in arbitration.

Having errors and omissions coverage helps the company avoid a substantial financial hit—even bankruptcy—depending on the company's finances.

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https://www.investopedia.com/terms/e/errors-omissions-insurance.asp

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