Errors and Omissions (E&O) Insurance

Errors and Omissions insurance is professional liability coverage that protects contractors from claims by the government or third parties alleging that the contractor's professional services were performed negligently, incorrectly, or inadequately.

What is Errors and Omissions (E&O) Insurance?

Errors and Omissions (E&O) insurance, also known as professional liability insurance, covers financial losses resulting from professional mistakes, omissions, or failures to exercise the expected standard of care in the performance of professional services. It is distinct from general liability insurance, which covers bodily injury and property damage.

When E&O is required on government contracts:

• Engineering and architectural design contracts (design errors that cause construction defects).
• IT consulting and software development contracts (code errors that cause system failures).
• Management consulting contracts (faulty advice that results in financial loss).
• Accounting and auditing services (errors in financial reporting or audit opinion).
• Legal services contracts (malpractice claims).

The government requires E&O when the nature of professional services creates risk that mistakes could cost more than a standard CGL policy covers. E&O claims typically involve:

• An engineer's design flaw that leads to construction rework.
• A software developer's error that causes a system outage.
• An IT security consultant's oversight that leads to a data breach.
• An auditor's failure to identify a material misstatement.

Key E&O policy features:

• Claims-made basis: E&O policies typically cover claims made during the policy period, not when the error occurred. Contractors must maintain continuous coverage (or purchase an extended reporting period "tail") to ensure claims discovered after policy expiration are covered.
• Retroactive date: The retroactive date establishes how far back in time errors can be that still generate covered claims. Contractors should ensure the retroactive date covers the period when the work giving rise to potential claims was performed.

Why E&O Insurance matters for government contractors

Professional services contractors who provide advice, design services, or IT development should carry E&O as a matter of course regardless of whether it is contractually required. Government contracts for engineering, IT modernization, and consulting increasingly specify minimum E&O limits. Going into a proposal without adequate E&O coverage can result in technical unacceptability.

Example

An architecture firm wins a federal courthouse design contract. The contract requires E&O (professional liability) insurance with limits of $2 million per claim and $4 million aggregate. Three years after the design is completed and the courthouse is built, a structural issue is discovered in the elevator shaft design. The General Services Administration files a professional liability claim against the architecture firm for $1.8 million in remediation costs. The firm's E&O policy covers the claim, paying the remediation cost minus the $25,000 deductible. Without E&O coverage, the firm would face a $1.8 million out-of-pocket liability.

Frequently Asked Questions

What is the difference between E&O and professional liability insurance?

They are the same thing. "Errors and Omissions" is the term used in technology, consulting, and financial services contexts. "Professional liability" is the broader term used in architecture, engineering, medicine, and law. The coverage is conceptually identical: protection against claims arising from professional services performed negligently or inadequately.

How much E&O coverage is typically required?

Coverage requirements vary by contract size and risk profile. Common requirements range from $1 million to $5 million per occurrence for professional services contracts. Large infrastructure projects, major IT modernization contracts, and high-consequence advisory roles may require higher limits of $10 million or more. The solicitation will specify minimum required limits.

Does general liability insurance cover professional mistakes?

No. Commercial General Liability (CGL) insurance covers bodily injury, property damage, and advertising injury resulting from the contractor's operations. It does not cover claims arising from professional advice, design errors, or service deficiencies. A CGL-only contractor is unprotected against professional liability claims, which is why both coverages are required for professional services.

Is cyber liability considered a type of E&O?

Some cyber liability coverage is structured as a form of professional liability (technology E&O) for IT service providers whose cyber negligence causes a client's data breach. More commonly, cyber liability is structured as a separate coverage from E&O, with E&O covering the professional service error and a cyber policy covering the resulting data breach response costs, regulatory fines, and third-party liability from the breach itself.