Errors and omissions (E&O) insurance
Also known as: e&o insurance, professional liability insurance, professional indemnity insurance
Errors and omissions insurance is professional liability coverage that protects a firm or practitioner against claims of negligence, mistakes, or failure to perform professional services. It typically pays legal defense costs as well as any damages awarded.
Errors and omissions coverage responds to financial harm caused by professional work rather than to bodily injury or property damage from ordinary operations. A design that fails to meet a specification, an overlooked calculation, missed advice, or a service not delivered as promised all fall within its scope. Engineers, architects, accountants, attorneys, consultants, insurance agents, and financial advisers are the typical buyers.
It occupies a specific gap in a business insurance program. A commercial general liability policy covers bodily injury and property damage arising from premises and operations, but it excludes liability arising from rendering or failing to render professional services. E&O fills that exclusion. Most E&O policies are written on a claims-made basis, meaning the policy in force when the claim is reported responds — not the policy in force when the work was performed. That structure makes continuous coverage important, and departing practitioners often purchase extended reporting period coverage, commonly called tail coverage, to protect against claims filed after a policy ends.
Coverage of defense costs is frequently the more valuable feature. Professional negligence allegations are expensive to defend even when the professional ultimately prevails, and many policies apply defense expenses against the policy limit. Standard exclusions include intentional wrongdoing, fraud, and criminal acts, so a policy cannot insure away deliberate misconduct.
For licensed engineers, E&O sits inside the broader framework of professional liability, where an engineer owes a duty of care to clients and to the public. Breaching the standard of care that a reasonably prudent engineer would exercise creates negligence exposure, and insurance transfers the financial consequence without transferring the professional responsibility.
The FE Mechanical exam covers this within its ethics and professional practice topic. You should be able to distinguish professional liability from general liability, recognise negligence as a failure of the standard of care, and understand that insurance addresses the financial risk of a claim rather than an engineer's underlying duty to protect public health and safety.
Key takeaways
- E&O insurance covers claims of negligence, mistakes, or failure to perform professional services.
- It fills the professional services exclusion in a commercial general liability policy.
- Most policies are claims-made, responding to when a claim is reported rather than when the work was done.
- Defense costs are covered and often erode the policy limit.
- Intentional wrongdoing, fraud, and criminal acts are excluded and cannot be insured.