Does E&O Insurance Cover Errors and Omissions Made By Employees?

E&O insurance typically provides coverage for errors and omissions made by employees while performing their professional duties, but the extent and specifics of this coverage can vary significantly depending on the policy and the nature of the business.

Most comprehensive E&O insurance policies include protection for mistakes made by employees acting within the scope of their employment. This means that if an employee commits an error that results in financial loss to a client, the insurance can help cover the resulting legal expenses and potential damages. However, there are important nuances and limitations to this coverage that businesses must carefully understand.

The policy generally covers unintentional errors, negligence, and professional mistakes made by employees in good faith. This includes situations where an employee provides incorrect advice, fails to perform a critical task, or makes an oversight that directly impacts a client's financial interests. The coverage extends to current employees and often includes protection for past employees for claims related to their previous work, subject to the policy's specific terms.

However, E&O insurance does not provide blanket protection for all employee actions. Intentional misconduct, fraudulent activities, or deliberate criminal actions are typically excluded from coverage. If an employee knowingly commits a harmful act or violates professional standards, the insurance policy will likely not offer protection. This means businesses must still maintain robust hiring practices, employee training, and internal controls to mitigate such risks.

The specific language of the policy is crucial. Some E&O insurance policies require that the employer demonstrate they took reasonable steps to prevent errors and maintained appropriate professional standards. This often involves implementing comprehensive training programs, establishing clear procedural guidelines, and maintaining rigorous quality control mechanisms.

It's also important to note that the coverage typically applies to the business as a whole, rather than providing individual protection for each employee. The policy is designed to protect the company from financial losses resulting from professional errors, with the understanding that the business is ultimately responsible for the actions of its employees.

Many businesses complement their E&O insurance with additional protective measures, such as individual employee professional liability coverage or fidelity bonds for added protection against potential employee-related risks. Consulting with an insurance professional can help businesses understand the specific nuances of their E&O coverage and develop a comprehensive risk management strategy.

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03/31/2025