Insurance Curator Professional Liability Insurance (Errors & Omissions or E&O) protects service professionals from claims alleging mistakes, negligence, or failure to deliver services as promised. If you provide advice, design, consulting, or professional services in the United States — whether in New York City, Los Angeles, Houston, or Miami — understanding the specific coverages inside an E&O policy is critical to managing risk and negotiating contracts. This guide breaks down the common coverages, limits, exclusions, costs, and practical examples so you know exactly what to expect.
What E&O Covers — Core Components
E&O is designed to respond when a client alleges financial loss due to your professional services. Core coverage components include:
- Professional negligence / errors & omissions
Pays for damages (settlements or judgments) when a client alleges your work caused financial loss. - Defense costs (legal fees)
Covers attorneys’ fees to defend covered claims. Policies may pay defense in addition to or within the limits. - Claims-made vs. occurrence
Most E&O policies are claims-made: the policy in force when the claim is first made responds. If you retire or switch insurers, ensure continuous coverage or obtain tail coverage. - Third-party financial loss
Coverage for claims brought by clients (third parties) seeking monetary damages — not bodily injury or property damage (those are generally covered by GL policies). - Loss of documents / media liability
Covers costs to restore or recreate lost data and liability arising from lost client records or digital media breaches (often available as an endorsement).
Typical Exclusions to Expect
Common exclusions that frequently surprise buyers:
- Intentional or criminal acts
Fraud, dishonest acts, or deliberate wrongdoing are excluded. - Bodily injury / property damage
These are usually excluded and handled by General Liability or Professional Liability for specific professions (e.g., architects may need separate coverages). - Breach of contract (sometimes)
Pure breach of contract claims may be excluded unless the policy specifically includes contractual liability or you carry a “breach of contract” endorsement. - Prior acts / known claims
Claims known before policy inception are excluded unless you purchase retroactive date coverage or tail.
For deeper analysis on breach-of-contract exposure and E&O response, see Breach of Contract and E&O: How Professional Liability Insurance (Errors & Omissions) Responds.
Limits, Deductibles, and Defense Cost Handling
- Limits — Common small-business limits are $1,000,000 per claim / $1,000,000 aggregate (often shown as 1M/1M); higher-risk firms may carry $2M/$4M or more.
- Deductibles / Retentions — Typically range from $500 to $10,000+, depending on industry and claims history.
- Defense cost handling:
- Defense outside the limit (also called “in addition to”) — defense costs don’t erode the policy limit.
- Defense within the limit — legal fees reduce the available limit for settlements/judgments.
For a focused discussion on how defense costs are allocated, see Defense Costs and Professional Liability Insurance (Errors & Omissions): Who Pays What?.
Common Endorsements & Add-Ons
- Data breach / cyber liability endorsement — Adds coverage for client data breaches, notification costs, and some liability.
- Contractual liability — Extends coverage for liabilities assumed under a contract.
- Retroactive date buy-back — Closes gaps if your retroactive date leaves exposure for earlier acts.
- Prior acts (tail) coverage — Crucial when switching carriers or retiring to cover claims reported after policy termination.
See more options in Endorsements and Add-Ons: Expanding Professional Liability Insurance (Errors & Omissions) Coverage.
Pricing — What It Costs (USA examples)
E&O premium depends on profession, revenue, claims history, limits, location, and insurer. Typical ranges:
- Small consultants / advisors (1M/1M): $400–$2,000 per year
- Technology / software firms (1M/1M): $1,200–$10,000+ per year depending on size and exposure
- Architects / engineers: $2,000–$20,000+ for higher limits or large firms
Insurers and market examples:
- Next Insurance advertises E&O coverage starting around $19/month for low-risk small businesses (approx. $228/year) depending on class and revenue: https://www.nextinsurance.com/errors-and-omissions-insurance/
- Hiscox and The Hartford offer E&O for small businesses with typical $1M limits often in the $500–$2,000/year range for low-exposure professional services:
Broker data and avg. cost breakdown (Insureon): insurers report average E&O premiums often near $1,000–$1,200/year for many small professional firms: https://www.insureon.com/insurance/errors-and-omissions.
Note: premiums vary significantly by city — e.g., an IT consultant in Manhattan or San Francisco may pay 20–50% more than a peer in Austin or Columbus due to higher litigation risk and revenue exposure.
Sample annual premium table (illustrative ranges by location & profession)
| Profession | Typical Limit | NYC (approx.) | Austin, TX (approx.) | Los Angeles (approx.) |
|---|---|---|---|---|
| Independent consultant | $1M/$1M | $900–$2,000 | $500–$1,200 | $800–$1,800 |
| SaaS startup (small) | $1M/$1M | $2,500–$8,000 | $1,200–$4,000 | $2,000–$6,000 |
| Small architecture firm | $2M/$2M | $6,000–$20,000 | $3,000–$10,000 | $5,000–$15,000 |
(These figures are representative ranges — obtain quotes for precise pricing.)
Real-World Claims Scenarios — What E&O Will and Won’t Pay
What E&O typically covers:
- A marketing consultant accused of recommending a campaign that failed and caused client losses — legal defense and settlement (if covered).
- A software developer failing to deliver a contracted module, causing client revenue loss — defense and damages (assuming no contractual exclusion).
What E&O typically does not cover:
- Intentional wrongdoing or criminal acts.
- Pure bodily injury claims (covered under General Liability).
- Known problems or pre-existing claims not disclosed at application.
For example claim walkthroughs, see Claims Scenarios: What Professional Liability Insurance (Errors & Omissions) Typically Covers — and What It Doesn’t.
How to Buy — Practical Steps
- Inventory exposures — list services, contracts, data held, and high-risk clients.
- Decide limits and retentions — balance contractual requirements with budget.
- Compare carriers — price, defense handling, exclusions, endorsements, and financial strength.
- Request endorsements — cyber/data breach, contractual liability, retroactive date options.
- Disclose prior claims — full transparency to avoid coverage denial later.
For service-specific considerations (consultants/advisors), review Service-Specific Coverage: What Professional Liability Insurance (Errors & Omissions) Covers for Consultants and Advisors.
Bottom Line
Professional Liability (E&O) is not one-size-fits-all. Expect core coverage for negligent acts and defense costs, with numerous endorsements to fill gaps (cyber, contractual liability, retroactive protection). Premiums vary widely across professions and U.S. locations — small consultants often pay hundreds to a few thousand dollars annually for $1M/$1M limits; tech firms and design professionals typically pay more. Always compare quotes from reputable carriers (Next Insurance, Hiscox, The Hartford, Travelers) and read policy forms to understand defense cost handling, exclusions, and retroactive coverage.
Sources and further reading:
- Next Insurance — E&O product pages: https://www.nextinsurance.com/errors-and-omissions-insurance/
- Insureon — Errors & Omissions insurance overview and average cost guidance: https://www.insureon.com/insurance/errors-and-omissions
- Hiscox — Professional liability coverage details: https://www.hiscox.com/professional-liability-insurance
- The Hartford — E&O information: https://www.thehartford.com/business-insurance/errors-and-omissions
For coverage nuances like reputational damage or when negligent advice is covered versus an error, see these related deep dives: