Errors and omissions insurance, also called E&O insurance, is a type of professional liability insurance that protects businesses against claims of mistakes, negligence, inadequate work, inaccuracies, misrepresentation or similar allegations. Your business may need E&O insurance if it provides services to customers for a fee.
Professional liability insurance, or PLI, is a specialty coverage that you can’t get under homeowners insurance endorsements, in-home business policies or business owner policies.
There are different types of E&O protections available for small businesses, such as:
Copyright infringement. Covers damages and expenses a business might have to pay if it infringes on someone else’s copyright.
Defense costs. Covers attorney fees or other costs a business must pay to deal with a covered claim, even if it hasn’t done anything wrong.
Negligence. Protects a business against actual or alleged errors or omissions in its services.
Some E&O policies will even cover work done outside of the country.
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What does errors and omissions insurance cover?
In general, E&O insurance may cover or reimburse you for some or all of the following:
Errors or oversights in your work.
Failure to deliver a service or missed deadlines.
Professional negligence or failure to meet a standard of care.
Breach of contract.
Claims filed when your policy is active for events that occurred after a date defined in your policy.
Legal and court costs typically related to the items above.
Settlements or judgments typically related to the items above.
E&O insurance may not cover:
Events that happened before the policy took effect.
Bodily injury your business causes (general liability policies typically cover that).
Property damage your business causes.
Employee injuries or illnesses (workers' compensation policies typically cover that).
Discrimination or harassment claims from employees (employment liability policies typically cover that).
How much does errors and omissions insurance cost?
The cost of E&O insurance varies. For example, insurance provider The Hartford estimates that business owners spend an average of $500 to $1,000 per employee per year on E&O coverage.
How much this insurance will cost you depends on several things, including:
Whether you’re in a high-risk industry.
How much coverage you want.
Whether there's a history of liability claims against your business.
Where you do business.
Number of employees.