Errors & Omissions (E&O) Insurance
Errors and omissions insurance – professional liability, in other words – answers the claim that your advice, your design or your service cost a client money. Not that someone was hurt or something was broken; those belong on a general liability policy. E&O answers the allegation that you got it wrong. It is also the one major business policy written on a claims-made basis, which means the date you report a claim matters as much as the date you made the mistake.
What Is Errors and Omissions Insurance?
Errors and omissions insurance responds when a client alleges that a professional service you performed – advice, design, specification, analysis, administration or representation – was negligent, incomplete or simply wrong, and that the mistake cost them money. There does not need to be an injury or any physical damage. In most E&O claims there is nothing to photograph at all: the loss is financial.
Two features set it apart from the rest of a commercial programme. It is written on a claims-made and reported basis, so the policy that answers is the one in force when the claim is brought against you, not the one in force when the work was done. And on most wordings, defence costs erode the limit rather than sitting on top of it – the opposite of a commercial general liability policy.
What an E&O policy pays for:
- Defence costs – counsel, expert evidence and arbitration or disciplinary proceedings, funded from the moment an allegation is made and long before anyone decides whether you were negligent.
- Damages and settlements – the financial loss the client suffered as a result of the error, up to the limit you bought.
- Claims that turn out to be groundless – a large share of professional negligence allegations are successfully defended. The cost of that defence is frequently the entire claim.
- Work performed on your behalf – where the policy is endorsed for it, sub-consultants and independent contractors working under your contract are brought inside your cover.
Cover is written per claim and in the aggregate. One million dollars per claim with a two million aggregate is a common starting point for a small firm; regulated professions and larger consultancies carry considerably more. Because defence usually comes out of that limit, the figure on the certificate is not the figure available to settle.
Why You Need Errors and Omissions Insurance
The Allegation Costs Money Before the Finding Does
You do not have to be wrong to be sued. Defending a professional negligence allegation means counsel, expert evidence and a great deal of your own time, and errors and omissions insurance funds that defence long before anyone decides whether a mistake was actually made.
Clients and Contracts Require It
Professional services agreements, consulting contracts, public tenders and prime consultant agreements routinely specify an errors and omissions limit and want the certificate before the engagement starts.
Some Regulators Make It a Condition of Licence
In several professions errors and omissions insurance is not a commercial decision at all. Minimum limits are set by the regulator, and in some cases a licence expires automatically the day the coverage lapses.
Incorporation Is Not a Shield Here
Professional negligence can attach to the individual who performed the work as well as to the firm that billed for it. That is why professional programmes are written to respond for both, and why the personal exposure does not disappear behind a corporate name.
How Claims-Made Errors and Omissions Insurance Works
The Retroactive Date Decides What Is Covered
Errors and omissions insurance only answers work performed on or after its retroactive date. A first-ever policy usually sets that date at inception, which means everything you did before today sits outside cover. Carrying a prior acts date forward is the most valuable line on the declarations page.
Continuity Matters More Than Price
A gap of even a day between policies can reset the retroactive date and strip years of past work out of cover. Moving your errors and omissions insurance to save premium is fine. Moving it without confirming that the retroactive date transfers is not.
The Claim Must Be Reported Inside the Period
Claims-made and reported means exactly that. A claim brought against you during the policy year has to be reported to the insurer during that year, or inside the short window the wording allows – even if your instinct is to resolve it with the client first.
When the Policy Ends, the Exposure Does Not
Retire, sell the practice or change direction and claims can still arrive for years afterwards. An extended reporting period, or tail, keeps the reporting window open. Some regulators require run-off errors and omissions insurance for a set period after a firm stops practising.
Read the Wording, Not the Certificate
Covered, Endorsed, or Excluded
Two errors and omissions policies carrying the same limit can behave completely differently. These are the lines worth checking before you sign anything.
In the Standard Wording
- Negligent acts, errors and omissions in professional services
- Misstatements, misrepresentation and negligent advice
- Breach of a professional duty of care
- Defence costs, usually eroding the limit
- Claims against the firm and its individual professionals
- Your consent to settle, subject to the wording’s hammer clause
Available by Endorsement
- Prior acts back to an agreed retroactive date
- Extended reporting period – run-off or tail cover
- Sub-consultants and independent contractors
- Regulatory and disciplinary defence, on a sub-limit
- Media, intellectual property and technology exposures
- Defence costs in addition to the limit, where available
Excluded
- Bodily injury and property damage – a liability exposure
- Dishonest, fraudulent or criminal acts
- Claims and circumstances known before inception
- Guarantees, warranties and cost or schedule estimates
- Re-performing your own work, and refunded fees
- Employment practices and directors’ duties
Known circumstances sink more claims than exclusions do. Every errors and omissions application asks whether you are aware of any act, error or circumstance that might give rise to a claim. Answering that question carelessly, or sitting on a brewing dispute rather than reporting it, is a far more common reason for a declined claim than anything in the exclusions.
Where the Line Falls
Which Policy Answers Which Claim?
The most common coverage argument in professional services is not about the size of the limit. It is about which policy the allegation belongs to – errors and omissions insurance, general liability, or something more specialist again.
Errors and Omissions
- The allegation is that your work was wrong
- Negligent advice, design, analysis or administration
- A missed deadline or filing that costs a client money
- Work that falls short of the professional standard of care
- Financial loss, with no injury and nothing physically damaged
- Claims-made; defence normally erodes the limit
Commercial General Liability
- The allegation is that someone was hurt or something was damaged
- Third-party bodily injury and property damage
- Damage arising from your premises or operations
- Products and completed operations
- Occurrence-based; defence normally sits on top of the limit
D&O, Cyber and Specialist Forms
- The allegation is about governance, data or a specialist exposure
- Mismanagement, disclosure and fiduciary duty
- Data breach, ransomware and privacy
- Design-build and construction professional exposures
- Wrap-up projects with a single professional limit
Overlap is normal. Gaps are not. One incident can trigger more than one policy – a consultant’s error that also exposes personal data, for instance. What matters is that the wordings dovetail and that they sit with one broker, so the argument about which policy responds happens between insurers rather than on your desk. Ask us to review the set.
Who We Insure
Who Needs Errors and Omissions Insurance?
If a client is paying you for judgment rather than for a product, you carry an errors and omissions exposure. For some professions the decision has already been made for you, and errors and omissions insurance is a condition of holding the licence.
Required by a Regulator
- Lawyers – mandatory cover through the provincial law society programme
- Real estate licensees – mandatory in Nova Scotia
- Mortgage brokerages, brokers and administrators
- General insurance agents and agencies
- Accountants in public practice, with run-off after the firm closes
Required by Contract
- Engineers, architects and design consultants
- Project and construction managers
- Management, environmental and technical consultants
- IT, software and managed service providers
- Anyone bidding public or institutional work
Advisable Regardless
- Marketing, design and communications agencies
- Bookkeepers, payroll and HR service providers
- Recruiters, trainers and coaches
- Property managers and building consultants
- Not-for-profits delivering professional services
Nova Scotia shows how uneven the rules are. Lawyers, real estate licensees, mortgage brokers, insurance agents and accountants in public practice all have to carry cover, each with minimum limits set by their own regulator. Engineers do not – Engineers Nova Scotia asks members either to carry adequate professional liability insurance or to tell the client they have none. Quebec and Manitoba make it compulsory for engineers; Ontario requires the disclosure. Check the rule that applies to your designation, in your province.
Errors and omissions sits inside a wider commercial program. See business insurance for how it fits alongside liability, property and the rest of the coverages a business carries.
Errors and Omissions Insurance FAQ
Is errors and omissions insurance mandatory in Canada?
It depends on your profession and your province rather than on the country. Lawyers, real estate licensees, mortgage brokers, insurance agents and accountants in public practice generally must carry it as a condition of licence, with minimum limits set by their regulator. Engineers face different rules in different provinces – compulsory in Quebec and Manitoba, disclosure-based in Ontario and Nova Scotia. For everyone else it is a contractual requirement rather than a legal one.
What is the difference between E&O and commercial general liability?
Commercial general liability answers bodily injury and property damage arising from your operations. Errors and omissions insurance answers financial loss caused by your professional judgment. An architect whose site hoarding falls on a passerby has a CGL claim; the same architect whose detail leaks has an E&O claim. The two do not overlap, and most professional firms need both.
What does claims-made mean?
The errors and omissions insurance policy that responds is the one in force when the claim is brought against you and reported to the insurer – not the one in force when you did the work. That is why an unbroken chain of policies, and the retroactive date carried through them, matters far more than any single year’s premium.
What is a retroactive date?
It is the earliest date of work your errors and omissions insurance will answer for. Anything performed before it sits outside cover, no matter when the claim arrives. When you change insurers the retroactive date has to be carried forward deliberately; if it is not, it resets to the new policy’s inception and everything you did previously becomes uninsured.
What is tail or run-off coverage?
An extended reporting period that keeps the window open for claims arising from past work after the policy ends – on retirement, on a sale, or when a firm simply stops practising. It does not cover new work. Some regulators set a minimum run-off period; CPA Nova Scotia, for example, requires six years after a firm deregisters.
Are defence costs paid on top of my limit?
Usually not. On most errors and omissions wordings defence erodes the limit, so a heavily defended claim can consume much of what was available to settle. Some professional programmes deliberately require defence in addition to the limit. It is one of the first things to check on a quotation, because two policies showing the same limit can be worth very different amounts.
How much E&O coverage do I need?
Regulator minimums come first where they apply. Beyond that the drivers are the size of the contracts you sign, the financial consequence of your advice being wrong, and what your clients specify. One million per claim and two million in the aggregate is a common floor for a small firm buying errors and omissions insurance; consultancies on institutional or public work routinely carry five million or more.
Are intentional or dishonest acts covered?
No. Fraud, dishonesty, criminal acts and deliberate wrongdoing are excluded from errors and omissions insurance. Many wordings will fund a defence until dishonesty is actually established and then seek repayment, which is worth understanding before an allegation is ever made.
What should I do if a client threatens a claim?
Report it immediately, before you respond substantively. Claims-made wordings require notice inside the policy period, and an admission or a goodwill fix offered before the insurer is involved can prejudice the claim. Tell your broker first – you can be entirely sympathetic to the client without conceding anything.
How are E&O premiums calculated?
Underwriters price errors and omissions insurance on the discipline you practise, your annual fee income, the type and value of the work you take on, your claims history, the limit and deductible chosen, the retroactive date being assumed, and the contracts you sign. Two firms with identical revenue can price very differently if one accepts uncapped liability clauses and the other does not.
Schedule a Consultation Today
Whether you are placing errors and omissions insurance for the first time, moving an existing policy without losing your retroactive date, or checking a limit against a new professional services agreement, our brokers can walk you through it.
Already had a claim, or the threat of one? Speak to our claims team first. Otherwise, reach out today and experience the Stanhope difference.