Professional liability insurance vs. errors and omissions
The terms are often used interchangeably, however industry and context are key in understanding the subtle distinctions between the two. No matter the phrasing, learn more about the nuances of E&O and professional liability insurance coverage to better understand who needs it and help you get the right coverage for your business.
What is professional liability insurance
Professional liability insurance protects against customer claims of negligence, bad advice, and similar complaints. If you provide professional services to clients, you might benefit from this coverage.
Professional liability can also be called other names, including errors and omissions (E&O) insurance, depending on the line of work or industry.
What is errors and omissions insurance?
Errors and omissions is a type of professional liability insurance. This terminology is most often used in industries like consulting, tax services, and real estate. This type of insurance is intended to protect against costly errors, delays or oversight. Whether it’s called professional liability or E&O, the goal is to protect you from claims your service caused losses for your client
Professional liability insurance vs. malpractice insurance
In medical and legal fields, professional liability insurance is known as malpractice insurance. Even though it has a different name, it still protects professionals against claims of negligence and other mistakes. This sub-type of professional liability insurance is intended to cover harm and loss potentially caused by mistakes made by licensed medical and legal professionals.
What does professional liability or errors and omissions insurance cover?
Professional liability insurance protects you against claims that you:
- Made a mistake
- Gave bad advice
- Committed breach of contract
- Caused indirect (usually financial) loss for a customer or client
While this coverage protects against mistakes, it won't cover intentional or illegal acts. It also doesn't cover data breaches or cyber-attacks, which are covered by cyber insurance.
How professional liability insurance compares to general liability insurance
General liability insurance typically covers physical risks in and around your business and is, at times, called business liability insurance while professional liability insurance aims to cover losses to others potentially caused by a service or professional advice. There are important distinctions between these two types of coverage. Learn more about the differences between general liability and professional liability.
Professional liability protects against indirect damage claims you made a mistake that caused them financial loss. For example, a customer might sue if:
- A tax preparer makes a mistake that results in their client being charged a penalty by the IRS
- A real estate agent sells a property without disclosing a known defect
- An IT company creates custom software for a client, but the software has bugs that cost the client business
In cases like these, professional liability insurance can protect you from paying for the client's loss or legal fees.
Protection starts with prevention
Professional liability is an important safety net, but it's better to avoid costly mistakes in the first place. Stay current with your industry's best practices to prevent problems before they start.
Do I need professional liability insurance?
Professional liability insurance is a common coverage for jobs that give advice or provide services, including:
Some professions and states might require this coverage by law. In other cases, clients may include errors and omissions insurance as part of their contracts. Even if your business isn't obligated to carry professional liability insurance, most professions can benefit from the protection it provides.
If you need professional liability insurance to safeguard your business, contact our experts to learn more or get a quote.
