Errors and Omissions (E&O)

Errors and omissions coverage, commonly called E&O or professional liability insurance, protects service businesses and professionals when a mistake, oversight, or failure to perform professional services causes a client to suffer a financial loss. It is the professional-services equivalent of malpractice coverage, which is the specific term used in medicine. Any business that gives advice, provides analysis, designs solutions, manages others' finances or data, or represents clients in professional capacity carries E&O exposure that general liability does not address.

General liability covers bodily injury and property damage caused to third parties. E&O covers pure financial harm with no physical component. If an accountant files a return incorrectly and a client faces a $200,000 tax penalty as a result, there is no physical injury and no property damage -- just a financial loss caused by a professional error. General liability pays nothing. E&O pays for the legal defense and the settlement or judgment. Professions that commonly carry E&O include financial advisors, architects, engineers, insurance agents, management consultants, IT professionals, attorneys, staffing agencies, and anyone who provides services where a professional error could cost a client money.

E&O policies are almost always written on a claims-made basis, meaning the policy must be active when the claim is reported, not just when the underlying error occurred. If you close your business or retire, buying tail coverage to extend the reporting window after the policy ends is essential. Errors discovered by clients years after the work was done are common in professional liability -- a financial plan that underperformed for five years before the client realized the advice was flawed, or a design that passed inspection but failed structurally two years later. The tail premium is typically one to two times the annual premium, paid once, for ongoing protection.