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Errors and Omissions Insurance (E&O)


Errors and Omissions Insurance (E&O), also known as Professional Liability Insurance, is a type of liability insurance that protects businesses and individuals against claims of inadequate work or negligent actions. It mainly covers legal costs and damages associated with errors, omissions, or acts of professional negligence. These instances could possibly result in financial loss for clients, and E&O insurance serves as a financial safety net for such circumstances.


Errors and Omissions Insurance (E&O): IPA (International Phonetic Alphabet) transcription: /ˈerərs ænd əʊˈmɪʃənz ɪnˈʃʊərəns/Phonetic Spelling: Err-uh-rs aend oh-mish-unz in-shur-uhns

Key Takeaways

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  1. Insurance for Negligence: E&O Insurance, also known as Professional Liability Insurance, shields your business from claims of negligence related to your professional services. This is important as these can potentially lead to significant financial loss.
  2. Coverage includes Legal Costs: E&O Insurance covers legal defense costs when a claim is made against your company, regardless of fault. It’s essential to note that these costs can be substantial, even if the claim turns out to be groundless.
  3. It’s not covered by General Liability Insurance: E&O Insurance complements your General Liability Insurance policy but does not replace it. General Liability covers physical harm or property damage, whereas E&O covers financial losses and legal issues resulting from your services or advice.

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    Errors and Omissions Insurance (E&O) is crucial in the world of business/finance as it provides protection against potential lawsuits due to alleged negligent acts or failure to provide the level of service that clients expect. In industries where services involve advice, guidance, or professional expertise, a simple mistake or omission in delivering these services can lead to significant financial losses for clients, who may then decide to sue. Without an E&O insurance, businesses might face insurmountable legal fees and damages that could potentially lead to bankruptcy. Therefore, this insurance can be vital in preserving a company’s reputation, financial health, and ongoing operations.


    Errors and Omissions Insurance (E&O) serves a crucial purpose for professionals and businesses who offer advisory services or deal with client data. It’s designed to protect businesses against financial losses that could arise from claims of negligence, errors, or omissions in the service or advice provided. Without E&O insurance, businesses can be vulnerable to substantial financial damages if a client believes the professional advice or service they received was unsatisfactory and decides to initiate a claim. E&O insurance can cover legal defense costs, regardless of the fault, and any potential settlements or judgments, up to the limits of the policy. This kind of insurance can be particularly important for businesses providing professional services like financial advisors, insurance agents, attorneys, accountants, architects, and engineers. In essence, it’s a risk management tool that helps professionals provide their services confidently, knowing they have a safety net should any issues arise.


    1. Real Estate Agency: A real estate agency purchased Errors and Omissions Insurance to safeguard against potential lawsuits. Unfortunately, one of their agents made an error in the listing information of a property, undervaluing it by a substantial amount. The buyer later realized this and sued the agency for the financial loss. Luckily, the agency’s E&O insurance covered the legal expenses and any potential settlements, saving the agency from a significant financial impact.2. Financial Advisor: A financial advisor working for a small firm recommended an investment to a client that ended up failing badly. The client, feeling that the advisor did not thoroughly research the investment and therefore committed an error, decided to sue for losses. The financial advisor’s E&O insurance covered the legal costs and the settlement with the client, preventing a major financial setback for the advisor.3. Software Company: A software company builds a custom software program for a client, but unknowingly omits a crucial feature that was outlined in their contract. As a result, the client experiences critical operational disruptions and sues the software company for financial damages. Thankfully, the company’s E&O insurance policy covers the legal implications and the costs associated with rectifying the omission, mitigating potential losses for the software company.

    Frequently Asked Questions(FAQ)

    What is Errors and Omissions Insurance (E&O)?

    Errors and Omissions Insurance (E&O) is a type of professional liability insurance that covers businesses and individuals in the event they are held responsible for a service provided that did not have the expected or promised results, or if a business is held responsible for services that were not provided at all.

    Who needs Errors and Omissions Insurance?

    E&O insurance is useful for anyone providing a service to clients for a fee, like consultants, software developers, notaries, real estate brokers, and more. This type of coverage is particularly important in industries where clients could potentially face significant financial loss due to the provided services.

    How does Errors and Omissions Insurance protect businesses?

    E&O insurance can protect businesses from financial loss due to lawsuits stemming from mistakes or negligence. It can cover legal defense costs, settlements, and court judgments.

    What types of claims are covered under Errors and Omissions Insurance?

    Examples of claims that might be covered by E&O insurance are negligence, misrepresentation, inaccurate advice, and violation of good faith and fair dealing.

    What is not covered by Errors and Omissions Insurance?

    E&O insurance usually doesn’t cover criminal, fraudulent, or intentional acts of wrongdoing, or liabilities that are covered by other types of insurance policies.

    Is Errors and Omissions Insurance required by law?

    E&O insurance is not required by law, but some industries may require it for professional licensing. Despite it being optional, having E&O insurance can be a valuable part of a comprehensive business risk management strategy.

    How much does Errors and Omissions Insurance typically cost?

    The cost of E&O insurance varies significantly based on many factors like the size of the business, the industry it operates in, and the amount of coverage required. Consulting with an insurance specialist is recommended.

    Related Finance Terms

    • Professional Liability Insurance
    • Malpractice Insurance
    • Indemnity Coverage
    • Legal Defense Costs
    • Claim Settlements

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