What is the difference between Errors and Omissions (E&O) Insurance and professional liability insurance?

What Types of Businesses Need Professional Liability Insurance?

Any business that provides its clients with expert guidance, information, or knowledge-based services—such as a bookkeeper, marketing consultant, or executive recruiter—can benefit from professional liability coverage. Certain specialized or licensed businesses like law firms, architecture and engineering firms, and software development companies can find professional liability solutions designed specifically for their sector. Likewise, in-house attorneys or corporate counsel can seek professional liability coverage under an employed lawyers policy, while media organizations such as publishers or broadcasters can seek coverage for their intellectual property through a media liability policy.

A broader range of service providers can seek coverage under a Miscellaneous Professional Liability (MPL) policy. Even if your business works in a highly specialized niche, an insurer that provides MPL coverage may be able to write a customized policy for your specific needs, tailored to fit your services.

What Types of Claims are Made Against Professional Service Firms?

Professional liability claims range widely—from a business demanding a refund from a tax preparer that filed its federal tax returns but failed to complete state and local returns, to a manufacturer suing a consultant for recommending costly investments in new equipment that failed to lower production costs. However, they are generally based on a customer’s perception that a professional services firm has:

• Failed to complete expected tasks. A customer expects a services firm to complete a greater scope of work than what was delivered, resulting in losses to the customer.
• Provided erroneous guidance. A customer claims that it suffered financially because a professional services firm provided inaccurate, incomplete, or misleading information or guidance.
• Fallen short of promised results. A customer incurs financial losses when the results forecast by a professional service provider are not met.

Your business can also help prevent professional liability claims from arising or limit their severity by taking key steps to limit errors and disputes in the first place. Read “Seven Steps to Limiting Professional Liability Claims” to learn more, and explore Chubb’s professional liability solutions here.

What Types of Claims are Made Against Professional Service Firms?

Professional liability claims range widely—from a business demanding a refund from a tax preparer that filed its federal tax returns but failed to complete state and local returns, to a manufacturer suing a consultant for recommending costly investments in new equipment that failed to lower production costs. However, they are generally based on a customer’s perception that a professional services firm has:

• Failed to complete expected tasks. A customer expects a services firm to complete a greater scope of work than what was delivered, resulting in losses to the customer.
• Provided erroneous guidance. A customer claims that it suffered financially because a professional services firm provided inaccurate, incomplete, or misleading information or guidance.
• Fallen short of promised results. A customer incurs financial losses when the results forecast by a professional service provider are not met.

Your business can also help prevent professional liability claims from arising or limit their severity by taking key steps to limit errors and disputes in the first place. Read “Seven Steps to Limiting Professional Liability Claims” to learn more, and explore Chubb’s professional liability solutions here.

Business liability insurance covers losses related to bodily injury, property damage or advertising injury. But what happens when a printer neglects to catch a typographic error on a large order of engraved wedding invitations? Or when a plumbing repair fails and causes an entire office to be flooded? 

Issues like these can be resolved with the purchase of errors and omissions (E&O) insurance. E&O insurance is a kind of specialized liability protection against losses not covered by traditional liability insurance. It protects you and your business from claims if a client sues for negligent acts, errors or omissions committed during business activities that result in a financial loss.

E&O insurance is a kind of specialized liability protection against losses not covered by traditional liability insurance. It protects you and your business from claims if a client sues for negligent acts, errors or omissions committed during business activities that result in a financial loss.

Errors and omissions insurance policies vary from company to company, and are written to reflect inherent risks and common exposures particular to different types of businesses.

Even if claims are found to be unwarranted, legal fees and other related expenses can quickly eat up a company’s cash reserves in no time, causing a financial hardship. Most errors and omissions insurance policies cover judgments, attorney fees, court costs and settlements up to the limits of the policy.

Some events resulting in a loss for a client may have occurred several years in the past, and the first time the mistake is apparent is when a court summons arrives in the mail. That’s when the retroactive date on the policy is very important. The farther back the retroactive date of the policy, the more coverage and protection it offers.

You need errors and omissions insurance if you’re in the business of providing a service to clients for a fee. We typically provide E&O coverage to printers and building-trades contractors, such as electricians, plumbers, HVAC installers and sheet metal workers.

E&O insurance is typically customized to meet specific needs of a business or industry. For example, a printer has different risks than an electrician. Both have the need for liability insurance, yet each needs a completely different type of coverage.

E&O insurance policies usually cover:

• You, the business owner
• Your salaried and hourly employees
• Any subcontractors working on behalf of your business

Professional liability insurance helps you market your business as trustworthy and responsible, setting you apart from uninsured competitors. It’s not just good for business – it’s often a must for business.

Many clients will require your company to present a certificate of insurance for this policy before they hire you. If a project doesn't go as planned, they feel assured they can recoup their losses. Review your contract carefully to see if this coverage is a requirement.

Insureon’s professional liability insurance cost report offers details on how much businesses in different industries can expect to pay for this coverage. Building designers pay the highest professional liability premiums, averaging $1,705 per year, while finance and accounting professionals pay just $400.