Errors and Omissions Insurance
Errors and Omissions (E&O) insurance is a form of professional liability coverage that protects businesses and professionals from claims arising out of mistakes, negligent acts, or failures to perform a professional service that cause a client financial harm.
Errors and Omissions insurance addresses the specific liability exposure that professionals face when a client suffers a financial loss and alleges it was caused by a professional mistake or inadequate service. General liability insurance covers bodily injury and property damage, but it typically excludes professional services errors. E&O insurance fills this gap for professionals whose work product — advice, designs, analyses, software — can cause economic harm even without any physical injury.
Professionals across a wide range of fields carry E&O coverage: financial advisers, insurance brokers, attorneys, accountants, architects, engineers, technology consultants, real estate agents, and healthcare providers (who typically call their version malpractice insurance). Regulators in many fields require minimum E&O coverage as a condition of licensure or registration. Broker-dealers and investment advisers registered with FINRA or the SEC, for example, are commonly required to carry professional liability coverage.
E&O policies are generally written on a claims-made basis: the policy in force when the claim is made — not when the alleged error occurred — responds to the claim. This means professionals must maintain continuous coverage and should purchase extended reporting period (tail) coverage if they cancel a policy, retire, or change carriers, to preserve coverage for claims that arise from past work after the policy has ended.
Coverage is typically structured with a per-claim limit and an annual aggregate limit. Deductibles or self-insured retentions require the insured to absorb the first portion of any claim settlement or defense cost. Defense costs may be inside the limits (reducing available coverage) or outside the limits (supplemental to the coverage amount), which is an important distinction when evaluating policies.
Premiums are driven by the nature of the profession, the volume of client transactions, the size of client portfolios or projects managed, prior claims history, and the specific policy limits and deductible selected. A financial adviser managing a large book of assets will typically pay significantly higher premiums than one with a smaller practice.