Errors and Omissions Insurance
Errors and Omissions (E&O) insurance protects professionals against claims of negligent acts, errors, or omissions in their professional services. It covers legal costs and damages when clients sue for mistakes or failure to perform professional duties adequately.
Example
“The financial advisor's errors and omissions insurance covered the $150,000 lawsuit when a client claimed poor investment advice caused significant portfolio losses.”
Memory Tip
Think 'E&O = Everyone Oops' - even the best professionals make mistakes (errors) or forget things (omissions), and this insurance covers those 'oops' moments.
Why It Matters
Professional service providers can face devastating lawsuits even when they believe they did nothing wrong. E&O insurance protects your personal assets and business from claims that could cost tens or hundreds of thousands of dollars in legal fees and settlements.
Common Misconception
Many professionals think they only need E&O insurance if they make obvious mistakes. However, clients can sue for perceived inadequate results or miscommunication, even when the professional followed proper procedures.
In Practice
An accountant with $1 million E&O coverage makes a calculation error on a business tax return, resulting in $45,000 in penalties and interest for the client. The client sues for $100,000 including lost time and additional costs. The E&O policy pays $85,000 to settle the claim plus $35,000 in legal defense costs, while the accountant only pays the $5,000 policy deductible.
Etymology
From Latin 'error' (wandering, mistake) and 'omittere' (to let go, neglect), reflecting the two main types of professional liability: doing something wrong or failing to do something required.
Common Misspellings
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See Also
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