Errors & Omissions Insurance

You may be extremely confident that product works as advertised or that your services are performed with reliability and precision. Your confidence may be completely warranted. You probably still need errors & omissions insurance.

Errors & omissions insurance covers two very big risks:

1. Financial loss of a third party arising from failure of the insured’s product to perform as intended or expected.
2. Financial loss of a third party arising from an act, error, or omission committed in the course of the policyholder’s performance of services for another.

To illustrate, imagine a customer who can’t log into your client-onboarding SaaS platform for two days due to a bug in your tech. This inadvertent lockout causes the customer to miss out on a hefty amount of new business that week. Your GL policy would not respond in this situation since there hasn’t been any physical injury to the client’s property. Instead, E&O would respond to covered claims brought by customers for their lost sales.

The types of operations that need professional liability coverage to mitigate their risk are almost too many to count:

Errors & omissions insurance, or “E&O,” is a type of professional liability insurance. Included within the professional liability category of business insurance are miscellaneous professional liability, technology E&O, and medical or legal malpractice policies. Technology E&O and cyber liability coverages are often packaged together since the two types of claims tend to intertwine.

Essentially, if you make a claim that your product or service will perform in a way that would be expected based on industry standards and your customer decides that claim was unfounded, errors & omissions insurance would step in to protect you from the lawsuit. The policy does this by paying your defense costs as well as settlements and judgments against your company. It’s malpractice insurance.

You might be thinking that this is just like products liability coverage provided by GL insurance policies. In a way, you’re right! Both are insurance policies that protect you from liability to third parties that results from the use of your product. The difference is that E&O is focused on purely financial losses, not bodily injury or property damage as is the case with GL insurance. (The exceptions to this rule include medical malpractice insurance as well as E&O policies with “contingent bodily injury/property damage” coverage enhancements).

Depending on the line of business you’re in, other coverages may be built into your policy. For example, companies in the technology space often purchase policies that include protections from liability after data breaches, hacking attacks and even allegations of defamatory material in the company’s online content.