Professional Liability vs Errors and Omissions Insurance

What is Professional Liability Insurance?

Professional liability insurance is also called malpractice insurance. It is designed for professionals such as doctors, lawyers, engineers, accountants, and other licensed experts. It protects against claims of negligence, mistakes, or failure to deliver services as expected.

For example, a client sues a doctor for a misdiagnosis or a lawyer for giving incorrect legal advice. In this case, professional liability insurance helps cover legal fees, settlements, or court judgments. Without this insurance, such claims could seriously impact the professional’s finances and reputation.

You Need This Cover If

• You provide services or advice directly to clients
• There's a risk of being sued for professional errors
• Your profession is legally or contractually required to carry it

What is Errors and Omissions (E&O) Insurance?

Errors and omissions insurance, as mentioned earlier, offers similar protection. However, it is more common in professions like consulting, real estate, advertising, financial services, and insurance brokerage.

This insurance type covers claims arising from a failure to fulfill professional duties, errors in your work, or important information that was unintentionally left out. For instance, if a real estate agent forgets to disclose a structural issue in a home, the client could sue for the financial loss incurred.

You Need This Cover If

• Your work involves contracts or client deliverables
• Mistakes, oversights, or delays could harm clients financially
• You're in a service-based business with high client interaction

Why Do You Need Professional Indemnity vs Errors and Omissions Insurance?

General liability insurance protects against physical injuries and property damage. However, it won’t help if a client sues you for doing your job poorly. That’s where E&O or personal liability insurance comes in.

Let’s say —

• You're an accountant and miss a crucial filing deadline
• You're a software developer and your code introduces a security flaw
• You're a real estate agent and forget to flag a zoning issue

All of these could result in costly lawsuits, even if you didn't actually do anything wrong.

Who Needs Professional Liability vs Errors and Omissions Coverage?

Basically, anyone offering a professional service or advice. Generally, this type of coverage is obtained by personnel in the following industries —

• Doctors, lawyers, architects
• IT consultants, SaaS providers, cybersecurity firms
• Engineers, project managers, insurance brokers
• Real estate agents, media professionals, event planners

Note: Even niche professionals like ice sculptors have been sued over customer dissatisfaction. 

What’s Included in Professional Liability Insurance and E&O Insurance?

Whether labelled E&O or business liability, these policies usually cover —

• Alleged negligence
• Misrepresentation
• Violation of good faith and fair dealing
• Inaccurate advice
• Failure to deliver promised services

It’s important to note that these plans don’t usually cover bodily injury or property damage (unless part of specialised policies like medical malpractice or manufacturing E&O with cyber and pollution riders).

How Does the Claim Work in Business Liability and E&O Insurance?

Most E&O or professional indemnity policies are claims-made, meaning you’re only covered if the claim is made while your policy is active. Some providers offer occurrence-based policies, which cover incidents that happened during the policy period, even if the claim comes later.

If you're retiring or closing your business, ask your insurer about tail coverage to extend protection.

Even if a claim gets dismissed, legal fees can wipe out your savings. For example, the average defense cost in healthcare, even for a trivial malpractice claim, is around $120,000.

Policies help cover —

• Attorney fees
• Court costs
• Settlements or judgments

Without personal liability insurance, you’re on the hook for all of that.

How Does Coverage Get Tailored to You?

Policies are often customised to fit your specific risks. For instance —

• Real estate agents may be covered for failure to disclose environmental hazards
• IT consultants might need coverage for data breaches or software bugs
• Accountants could be protected when acting as trustees or fiduciaries

Some policies now bundle in cybersecurity, intellectual property, and pollution liability. This could be especially relevant for manufacturers and tech companies.

What Affects the Cost of Coverage for Professional Liability and Errors and Omissions Insurance?

While discussing professional indemnity vs errors and omissions, it’s worth noting that the premium you pay for coverage depends on a few things —

• Your industry (higher risk = higher premiums)
• Claims history
• Policy limits
• Deductible (higher deductible usually means lower premium)
• Cyber risk exposure

For instance, companies with IT professionals handling sensitive data usually pay more than those working with freelance translators.

Final Thoughts: Do You Need Both?

In many cases, professional liability insurance and E&O insurance serve the same purpose. They protect you from claims of negligence, mistakes, or failure to perform your duties. The terminology varies by profession —

• Doctors and lawyers usually call it professional liability or malpractice insurance
• IT firms, consultants, and agents mark it E&O insurance
• In the UK and some other countries, it’s often called professional indemnity insurance

Regardless of the name, the goal of professional liability vs errors and omissions insurance is the same.

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