What Is Errors and Omissions (E&O) Insurance? Definition, Coverage and Who Needs It
The short answer: Errors and omissions (E&O) insurance is a business insurance policy that pays legal defense costs and damages when a client claims your professional work, advice or product was inadequate and cost them money. It is also called professional liability insurance, and it covers financial loss, which is the harm that general liability policies generally leave out.
Quick facts
| Stands for | Errors and omissions |
| Also called | Professional liability insurance, tech E&O (for technology companies) |
| Covers | Claims that your services or product failed a client, such as mistakes, missed deadlines, negligence and failure to deliver |
| Pays for | Defense costs, settlements and judgments |
| Who buys it | Software and AI companies, consultants, agencies, fintech and crypto firms, brokers, advisors and other service businesses |
| Policy form | Almost always claims-made |
| Often does not cover | Bodily injury, property damage, intentional wrongdoing, and liability assumed only by contract |
In this article
- The definition of errors and omissions insurance
- What E&O covers
- What E&O does not cover
- E&O compared with other policies
- Who needs E&O
- Claims-made coverage and retroactive dates
- How to choose a policy
- Frequently asked questions
What is errors and omissions insurance?
Errors and omissions insurance is liability coverage for the work you do for other people. An error is something done wrong and an omission is something that should have been done and was not, and a claim under the policy typically alleges that one of these caused the client a financial loss. If a client says your software failed, your advice was wrong, your deliverable arrived late or your service did not do what you promised, E&O is the policy that funds the defense and pays a covered settlement or judgment. You can read the formal definition in our glossary entry on errors and omissions.
What does E&O insurance cover?
E&O covers claims that your professional services or product caused a third party financial harm. Common triggers include:
- Negligence: a mistake or lapse in the quality of your work or advice.
- Errors and omissions: something done incorrectly or left undone.
- Failure to deliver: work that is late, incomplete or does not meet the agreed specifications.
- Misrepresentation: claims that you overstated what a service or product would do.
- Service interruptions and technology failures: for technology companies, an outage or malfunction that costs a customer money.
- Violation of good faith and fair dealing: allegations connected to how you performed the services.
What costs does it pay?
The policy pays defense costs (attorney, expert and court fees) and any covered settlement or judgment. Defense is usually the largest expense, and it is incurred whether or not the claim has merit, which is why most buyers value the policy even if they expect never to pay a judgment.
What counts as a professional service?
A professional service is the work you are paid to perform for clients, such as software development, consulting, design, advice, management of client assets or processing of client transactions. The definition in the policy is important because coverage applies only to services that fall within it, which is why it should describe what your company really does, including newer products. Our E&O coverage guide goes deeper on how this wording works.
What does E&O insurance not cover?
E&O typically excludes bodily injury and property damage, intentional or fraudulent acts, employment practices claims, and claims between insureds. It also commonly limits liability that you assume only through a contract, such as guarantees, warranties and some service-level agreement penalties, so a promise you make to a customer may be outside the policy even when the work itself is covered. Data breach costs and ransomware sit with cyber coverage, and management decisions sit with directors and officers (D&O) coverage.
How does E&O compare with other business insurance?
| E&O | General liability | Cyber | D&O | |
|---|---|---|---|---|
| Protects against | Claims that your services or product failed a client | Bodily injury and property damage to third parties | Data breaches, ransomware and network security events | Claims about management decisions |
| Typical claimant | Customer or client | Visitor, customer or neighbor | Customers, regulators, affected individuals | Investors, employees, regulators |
| Type of loss | Financial loss | Physical harm or damage | Data and system loss, privacy claims | Financial and regulatory claims |
Technology companies often buy E&O and cyber together, since a single incident, such as a platform outage that also exposes data, can trigger both. We explain the overlap in our glossary entries for tech E&O and cyber liability insurance.
Who needs E&O insurance?
Any business that is paid for services, advice or a technology product can face an E&O claim, and the most common buyers are:
- Software, SaaS, AI and data companies
- Consultants, agencies and professional service firms
- Fintech, crypto and digital asset businesses
- Insurance agents, brokers, advisors and managers
- Engineers, architects, designers and other licensed professionals
- Companies whose customers require proof of E&O in contracts, as we explain in our guide to enterprise contract insurance requirements
For emerging technology companies in particular, the services definition and any AI wording deserve attention, since some policies now exclude or limit claims connected to AI. See AI liability insurance and our guide to AI liability insurance for how that gap is closed.
Why is E&O written on a claims-made basis?
E&O is almost always a claims-made policy, which means it responds to claims first made and reported while the policy is active, for wrongful acts that happened after the retroactive date. Professional claims often arrive long after the work was done, so the retroactive date is the part of the policy that protects your history. Switching carriers without carrying that date forward can leave past work uncovered, and if a policy ends without renewal an extended reporting period may be needed, as we describe in our guide to run-off and tail insurance.
How do you choose an E&O policy?
Check these points before you bind:
- Definition of professional services: whether it describes everything you sell now and plan to launch.
- Retroactive date: whether prior work is covered and the date is preserved on renewal.
- Defense costs: whether they sit inside your limit, eroding it, or outside it.
- Contractual liability: how the policy treats indemnities, warranties and service-level agreements in your customer contracts.
- Technology and AI wording: whether AI-related claims are covered or excluded.
- Limits and retention: whether they satisfy customer contract requirements and fit your exposure.
- Subcontractors: whether claims arising from the work of contractors you hire are covered.
- Claim reporting: how quickly you must report a claim or circumstance, since late notice can jeopardize coverage.
Underwriters typically ask about your services, contracts, customer types, quality control process and claims history, and a documented review process can help both your risk and your pricing.
Not sure your E&O fits your contracts?
Alton Risk Insurance Services LLC is a licensed commercial insurance brokerage that specializes in E&S coverage for emerging technology companies, including AI, crypto and fintech businesses and venture- and private-equity-backed firms. We place E&O alongside cyber, D&O and media liability so the program fits together without gaps.
Review your coverage →Related reading: What Is Media Liability Insurance? · AI Liability Insurance · Enterprise Contract Insurance Requirements
Frequently asked questions
What is errors and omissions insurance in simple terms?
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Errors and omissions (E&O) insurance pays defense costs and damages when a client says your professional work, advice or product was inadequate, late, mistaken or incomplete and that it caused them financial loss.
What does E&O insurance stand for?
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E&O stands for errors and omissions. An error is something done wrong, and an omission is something that should have been done and was not.
Is E&O the same as professional liability insurance?
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Yes, in most cases. Errors and omissions and professional liability describe the same core coverage, with E&O being the common label for service businesses, technology companies and agents, and professional liability the common label for licensed professions such as lawyers and architects.
What is the difference between E&O and general liability insurance?
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E&O covers financial loss caused by your professional services. General liability covers bodily injury and property damage, and it generally does not respond to claims that your work product or advice cost a client money.
What is the difference between E&O and cyber insurance?
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E&O responds when your services or product fail a client. Cyber insurance responds to data breaches, ransomware and network security events. Technology companies commonly buy them together in one program, often called tech E&O and cyber.
What is the difference between E&O and D&O insurance?
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E&O protects the company against client claims about its services. Directors and officers (D&O) insurance protects leaders and the company against claims about management decisions, such as those from investors, employees or regulators.
Is E&O insurance claims-made?
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Almost always. A claims-made policy responds to claims first made and reported while the policy is active, and for wrongful acts after the retroactive date, so keeping continuous coverage and a stable retroactive date matters.
Does E&O cover breach of contract?
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Usually only to the extent the claim also alleges a failure in your professional services. Many policies exclude liability you assume solely by contract, such as guarantees, warranties and some service-level agreement penalties, so the wording is worth reviewing before you sign customer contracts.
Does E&O pay for a claim that has no merit?
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It generally pays the cost of defending a covered claim even when the claim is baseless. Whether defense costs reduce your limit depends on the policy.
Who is required to carry E&O insurance?
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Requirements vary. Some states and licensing bodies require it for certain professions, and many enterprise customers, lenders and platforms require proof of E&O in their contracts, which is often the reason a company buys it.
How much does E&O insurance cost?
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Pricing depends on your industry, revenue, services, contracts, claims history, limits and retention. A broker can request quotes from several carriers for comparison.
Can't find an answer to your questions? Reach out to our team →
Sources: Hub International: What is Errors and Omissions (E&O) Insurance? (opens in a new tab) · Vouch: What does errors and omissions insurance cover? (opens in a new tab) · IRMI: Professional liability (opens in a new tab)
This article is for general information only and is not legal or insurance advice. Coverage varies by carrier and policy form; read your policy for the actual terms.