Errors and Omissions Statement: Everything You Need to Know
An errors and omissions statement helps protect a company and its workers against claims made by clients for inadequate performed professional services.3 min read
2. What Is Errors & Omissions Insurance?
3. Should Your Business Have Errors & Omissions Insurance?
4. What Is Covered by Errors & Omissions Insurance?
An errors and omissions statement (E&O), or disclaimer, helps protect your company and its workers against claims or lawsuits made by clients for inadequate performed professional services, including errors, omissions, or failure to perform professional services.
Are Errors & Omissions Statements Effective?
Many companies are now using E&O statements, or disclaimers, on their websites, in contracts, or in license agreements. This might theoretically protect a company from lawsuits, but not always. Disclaimers are most effective when written by a lawyer and supported with a professional liability insurance policy.
For example, a company may include a disclaimer on their website that the information on the site is for “informational purposes only.” This might offer some protection from legal actions; however, a customer could still claim that they suffered monetary damages and file a lawsuit. The company would then incur all the legal costs associated with their defense. If they don't have an E&O insurance policy, they could suffer major financial setbacks just from the cost of the lawsuit. And if the court finds them liable for the mistake or omission, they would also have to pay the settlement amount.
What Is Errors & Omissions Insurance?
Error and omissions coverage is a form of professional liability insurance. Most people are likely more familiar with other forms of professional liability insurance, such as malpractice insurance used in the healthcare industry. However, since the 1970s, the need for other types of professional liability protections in industries outside of healthcare has increased.
Companies that offer professional services to customers use E&O insurance. In these cases, the professional liability insurance protects the company if a customer claims that they incurred economic damages due to services the company provided or failed to provide, or even if the services failed to meet the expected results. Depending on the level of financial damage, this coverage can help your company avoid significant financial losses or even bankruptcy.
Some examples of monetary damages where a company might be liable include:
- Breach of agreed upon parameters or contracts
- Performance perceived to be under par
- Lack of due diligence
- Alleged dishonest acts of employees
- Failure of internal risk controls
This coverage differs from comprehensive general liability insurance because it protects your company from claims due to economic damages or money loss. E&O insurance doesn't require tangible physical damage to make a claim. In fact, most policies deny coverage for claims due to injuries or property damage. What's more, a well-written E&O policy will complement your liability insurance by filling a material gap in coverage.
Should Your Business Have Errors & Omissions Insurance?
Many companies and businesses need E&O insurance coverage. Examples of some of these services include:
- Auction house appraisers
- Cable or satellite providers
- Financial advisors
- Financial planners
- Insurance agents
- Insurance brokers
- Insurance underwriters
- Internet providers
- Investment advisors
- Mechanical engineers
- Private equity companies
- Real estate agents
- Real estate appraisers
- Securities brokers
- Server hosting companies
- Software designers
- Venture capitalists
- Web hosting companies
Some industries are more at risk for professional liability, so they may find E&O insurance more expensive or less favorable in its terms, such as financial services, insurance services, and information technology. Also, some regulatory organizations, such as the Financial Industry Regulatory Authority (FINRA) might require a company to have E&O insurance.
What Is Covered by Errors & Omissions Insurance?
Many insurance providers customize their E&O policies to meet the needs of the business. This allows them to define specific protections for the professional services the business offers.
Depending on the policy and issuing insurance company, the benefits of your E&O statement will vary. In general, this insurance usually covers judgments, defense costs, and settlements up to a specified amount. Many policies also help companies with legal costs due to any formal regulatory or administrative proceedings in connection with these claims.
Of course, E&O insurance doesn't cover all liabilities. Some examples include:
- Acts performed by temporary employees
- Bodily injury or property damage
- ERISA violations
- Illegal acts committed that violate any state regulation or law
- Illegally gained company or personal profits
- Intentional wrongdoing or harm, including fraudulent or criminal acts or omissions
- Liability assumed under a contract
If you need help with errors and omissions statements, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.