Professional Indemnity or Errors and Omissions (E&O) Insurance. What's the difference?

Well, essentially nothing... Professional Indemnity and Errors and Omissions (E&O) Insurance are one in the same thing. Different industries have just adopted different names for the same type of cover over the years. When liability is limited to acts of negligence, professional indemnity insurance may be called "errors and omissions" liability. It is a type of business insurance put in place to protect those in the professional services industry to ensure they are covered should they be sued for either breaching contracts, making oversights or errors, or providing perceived sub-standard or incomplete work.

For example, medical and legal professionals tend to call it ‘Malpractice Insurance’, whilst accountants, real estate and technical professionals tend to call it ‘E&O Insurance’, and finally the likes of architects and engineers more commonly use the term ‘Professional Indemnity Insurance’.

How Professional Indemnity works

Should your client experience financial loss from one of these professional mistakes, then they are entitled to innitiate a court case against your company to recoup their losses. If you are insured for Professional Indemnity or Errors and Omissions Insurance, then you will be covered for any legal defence fees, court costs, and settlements imposed. Unfortunately, the quality of service a client receives can be completely subjective and so you may find yourself being sued even when you believe to have done no wrong.

Even when you win an E&O court case, it can still cost you money in legal and defence fees, so it is important to be covered and not to drain your resources on something that can’t be controlled. Claims can effectively bankrupt a smaller company or individual as a freelance worker, and even have a lasting effect on the bottom line of larger companies when insurance is not in place.

Some clients may even require Professional Indemnity/E&O Insurance

When you are offering a professional service some clients need a guarantee to show you have the financial means to back up your professional work, should something go wrong. In fact some clients will not go into business with you without it. It can be seen as a selling point, providing peace of mind that they will be compensated should something go wrong. It can also help to prove you have their interests at heart and you take your professional work seriously. Above all it is important to be open and honest with your clients throughout your relationship to help avoid any such claims and to mitigate any losses.

What is it going to cost you?

Professional Indemnity or E&O Insurance costs will depend on the type of industry that you operate in. For example, the risk of a claim within the world of an IT professional is significantly higher than other areas, due to the potential loss that could be experienced in this area. Costs can also depend on the location of your business and the experience that your provider has in the industry area.

Unfortunately professional indemnity does not have a one size fits all approach and so each policy needs to be tailored to the individual requirements, you can often seek to make savings though if your insurance provider bundles in other areas of your business insurance. You can also seek to make savings on your monthly payments if you choose a higher deductible (how much you pay out before the insurance benefits kick in).