Errors and Omissions (E&O) Insurance

Errors and Omissions (E&O) Insurance, also called Professional Liability Insurance or Malpractice Insurance, protects professional service providers against claims arising from errors, omissions, or negligent acts in the rendering of professional services. The product is essential for any business whose services involve professional judgment, expertise, or specialized advice. E&O is distinct from CGL: E&O addresses economic loss from professional services (bad advice, defective software, inaccurate appraisals); CGL addresses bodily injury and property damage from operations (slip and fall, premises injuries). Most professional services businesses need both.

Common categories of professional liability

Profession-specific E&O products: (1) lawyers, legal malpractice insurance; covers errors in advice, missed deadlines, conflicts; (2) accountants, accounting malpractice; covers tax preparation errors, audit failures, advisory errors; (3) medical professionals, medical malpractice; subject to Tex. Civ. Prac. & Rem. Code Ch. 74 caps and procedures; (4) architects and engineers, design professional liability; covers design defects, code violations, schedule failures; (5) technology providers, tech E&O; covers software defects, IT consulting errors, integration failures; often combined with cyber; (6) insurance agents and brokers, covers placement errors, coverage gaps, application misrepresentations; (7) real estate professionals, covers misrepresentation, disclosure failures, transactional errors; (8) financial advisors, covers investment advice, suitability errors, supervision failures; (9) consultants, covers strategic and operational advice errors.

Standard coverage structure

E&O policies typically include: (1) professional services definition, defines covered services; precision is critical (broad definitions provide more coverage); (2) per-claim limit, maximum payable per claim; (3) aggregate limit, maximum payable for all claims in policy period; (4) retention/deductible, insured's obligation per claim; (5) defense within or outside limits, whether defense costs erode the coverage limit (within) or are paid in addition (outside); (6) claims-made trigger, covers claims first made during policy period; (7) retroactive date, coverage extends back to this date for prior acts; (8) extended reporting period (tail), option for tail coverage at policy end.

Common exclusions

Standard E&O exclusions: (1) fraudulent or criminal acts, typically requires final adjudication; (2) known prior claims and circumstances, events known before inception; (3) contractual liability beyond what would exist absent contract; (4) express warranties and guarantees, affirmations of specific results; (5) insured vs. insured in some forms; (6) bodily injury and property damage, routed to CGL; (7) employment practices, routed to EPLI; (8) profit/personal advantage; (9) regulatory fines and penalties, varies; (10) specific high-risk activities by profession (e.g., securities offerings for accountants without endorsement).

The "claim" trigger

E&O claims-made coverage requires (1) a claim first made during the policy period and (2) reported during the policy period (or extended reporting period). "Claim" is typically defined broadly: written demand for monetary or non-monetary relief, civil proceeding, criminal proceeding, regulatory proceeding. The first claim arising from related acts triggers coverage; all subsequent claims based on the same wrongful acts relate back to the first claim. This "interrelatedness" provision means a series of claims based on the same underlying act is treated as one claim for limits and retention purposes.

Retroactive date and tail coverage

E&O policies typically include a retroactive date, the date back to which the policy covers prior acts. Acts occurring before the retroactive date are not covered, even if the claim is made during the policy period. Tail coverage (Extended Reporting Period or ERP) extends the policy to cover claims made after the policy ends but for acts during the policy period (subject to retroactive date). Tail coverage is essential at: (1) carrier change (gap protection); (2) practice termination (retirement, dissolution); (3) M&A involving the practice; (4) any change of control. Tail coverage typically costs 100-300% of the annual premium for 1-3 years (longer tails available for additional premium).

Texas Medical Liability Act overlay

For medical professionals, Texas Civil Practice and Remedies Code Chapter 74 (Texas Medical Liability Act) imposes specific procedures: (1) pre-suit notice with expert report; (2) statute of repose (10-year outer limit); (3) damages caps on non-economic damages ($250,000 per claimant against physicians, $250,000 per institution, $750,000 institutional aggregate); (4) heightened pleading and proof requirements. Texas medical malpractice insurance typically incorporates these protections in defense and settlement strategy.

Coordination with other policies

E&O often coordinates with other coverages: (1) CGL for premises and operations exposure; (2) cyber for data and technology incidents (some policies combine tech E&O with cyber); (3) D&O for executive-level decisions; (4) EPLI for employment-related claims; (5) fiduciary liability for ERISA matters. For technology providers, "tech E&O combined with cyber" is increasingly the standard product, addressing both professional liability and cyber exposure in a single policy.