Why Is E&O Insurance Important?

E&O insurance provides a financial safety net against litigation due to mistakes on the part of a business. Clients who claim to have suffered negative physical or financial results from dealing with a certain company can seek legal compensation from the owner; errors and omissions insurance offers a level of financial protection that differs from basic liability coverage.

Many business owners consider whether the cost of this insurance is worth the return on investment. In many cases of contract jobs, errors and omissions insurance is definitely recommended. Before purchasing an E&O policy, owners should compare the prices and coverage specifics from a few different insurance companies.


While an E&O policy covers the costs of attorney fees and related legal expenses, it sometimes does not include punitive damage costs. These costs differ from compensation because they are classified as deterrents in a court of law. Evidence of fraud or other illegal practices on the part of the business are also grounds for an E&O insurer denying coverage. E&O insurance does cover litigation cases that arise from disputes over quality or contract terms.

Some business owners pass on purchasing E&O insurance due to the added expense. Even with strict quality control measures in place, a company that only has basic liability coverage is still vulnerable to possible litigation. Claims of incompetence can still come from dissatisfied clients even when all quality measures and contract terms have been met. When this situation does happen, E&O coverage can save the owner significant sums of money.

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