Errors and omissions vs. malpractice insurance

Errors and omissions insurance (E&O) covers legal costs related to accusations of professional negligence, such as a mistake that causes a client to lose money. It's also referred to as professional liability insurance.

This policy is especially important for consultants and businesses that offer professional services, though many small businesses can benefit from this coverage. E&O insurance shields you from third-party lawsuits related to:

• Errors and oversights
• Missed deadlines
• Breach of contract
• Incomplete work
• Other unsatisfactory performance

Your business doesn't have to do anything wrong to face an E&O lawsuit. When a client loses money, they might name your business in a lawsuit in an attempt to recoup losses, even when it wasn't your fault.

An E&O policy will cover legal defense costs related to accusations of negligence, whether or not the claim is valid. That includes attorney's fees, court-ordered judgments, and settlements.

Malpractice insurance is another term for coverage that protects against accusations of negligence. It's sometimes used interchangeably with errors and omissions insurance and professional liability insurance.

However, malpractice insurance is designed for professionals in a narrow range of fields, namely law and medicine. Lawyers, doctors, and nurses are often required to carry this coverage.

In the healthcare industry, it's specifically called medical malpractice insurance. Unlike E&O insurance, medical malpractice can cover claims that you caused someone physical harm. For example, medical malpractice will cover legal fees if a doctor's misdiagnosis caused a patient's condition to worsen.

Malpractice insurance protects against a wide range of liability claims, including:

• Failure to meet a standard of care
• Causing pain, suffering, or mental anguish
• Failure to refer a patient
• Surgical mistakes and medication errors
• Undelivered services and missed appointments
• Unfounded claims of sexual misconduct
• Health Insurance Portability and Accountability Act (HIPAA) violations

Because malpractice lawsuits are so common, every healthcare professional should carry this coverage as part of their risk management strategy. Even experts can make mistakes—and the more years in practice, the more likely your chance of a lawsuit.

Malpractice insurance is a type of errors and omissions insurance designed primarily for healthcare professionals, while E&O is used more in the fields of technology, insurance, real estate, and accounting. The two policies are very similar, but not quite the same.

Errors and omissions insurance covers your business activities, while malpractice insurance covers lawsuits related to patient injuries. In short, E&O insurance covers negligence that causes financial harm, while malpractice insurance covers negligence that leads to bodily harm.

Other risks specific to medical professionals are also covered by malpractice insurance but not E&O, such as lawsuits related to HIPAA violations or accusations of sexual misconduct.

E&O insurance and malpractice insurance are sometimes used interchangeably, and different insurance companies may include different coverages in their policies. That's why it's important to read the terms and exclusions of your policy carefully, and talk to a licensed agent to make sure you're getting the coverage you need.

Whether or not you're required to carry medical malpractice insurance depends on the laws in your state, along with the contract terms of hospitals and other healthcare facilities. Many states have professional liability or malpractice insurance requirements in place for healthcare professionals, especially doctors with admitting privileges.

States that require certain levels of coverage for physicians include:

In California, physicians are only required to carry malpractice insurance if they perform outpatient surgery. Florida also has certain stipulations healthcare professionals must meet in order to be exempt from insurance.

As with other types of insurance, your malpractice insurance premium will depend on factors like your state, the type of work you do, your claims history, and the size of your business.

Malpractice insurance helps cover legal costs when someone outside your business sues over harm that you caused in the course of your work. Any professional whose work could negatively impact a client—financially or physically—should carry this coverage.

That includes:

• Experts who give advice
• Technicians with special training
• Anyone who provides a professional service

Again, the biggest difference between the terms malpractice insurance, E&O insurance, and professional liability insurance is the industries they cover. Here's a more detailed look at which professions rely on which policy:

Malpractice insurance is most common in healthcare and law, covering a wide range of professionals such as therapists, counselors, nurses, and lawyers.

For example, a nutritionist should be able to recognize a vitamin deficiency and recommend a diet to remedy it. Similarly, lawyers are expected to provide sound legal advice to their clients.

Industries that use the term E&O insurance include both insurance and real estate.

This policy covers court costs and other legal fees if a claims adjuster is sued for an inaccurate appraisal, or a real estate agent made a mistake in an MLS listing that impacted a homebuyer's decision.

Some states require E&O coverage for real estate agents. Insurance agencies and real estate agencies often require this coverage as well.

Software developers, IT consultants, data centers, and other tech companies also depend on E&O insurance to defend against lawsuits related to misconfigured software, programming errors, and other technical mistakes.

IT professionals often buy E&O insurance and cyber insurance together in a bundle called technology errors and omissions insurance or tech E&O. This policy includes coverage for data breach lawsuits, which might stem from insecure software or a lack of security measures.

Businesses that provide a professional service rely on professional liability policies for this kind of coverage. That includes event planners, security guards, and interior decorators.

If your work fails to live up to the expectations of a client, then you might face a professional liability lawsuit. An event planner might fail to book a promised venue on time, or an interior decorator might use the wrong color of paint. In these cases, professional liability coverage would pay for legal defense costs, including a judgment or settlement.

Malpractice insurance coverage is most commonly sold as a claims-made policy. To collect on a claim, this policy must be active both when the incident occurred and when the claim was filed.

Most other types of insurance, such as a general liability insurance policy, are occurrence-based policies. For these, you're covered for any incidents that happened during the policy period, even if you canceled your coverage.

With malpractice, E&O coverage, and other claims-made policies, it's important to maintain continuous coverage. For example, if a surgeon retires and cancels their policy, they would not be covered if a patient develops a condition long after the time of their surgery.

There are ways to extend the coverage of your malpractice insurance beyond the initial policy period. For example, you can set a retroactive date for when you'd like coverage to begin, or tail coverage for claims that happened after your policy expired.

General liability insurance is often the first type of coverage that small business owners buy. It provides financial protection against common business risks, including accidents that injure a customer or cause property damage. General liability also covers advertising injuries, such as libel and slander.

You might need to show proof of general liability coverage when you sign a lease or apply for a business loan.

While general liability insurance covers bodily injuries in the event of an accident, malpractice insurance covers bodily injuries that are related to your professional work. So, general liability would cover a lawsuit from a customer who tripped on a broken step, while malpractice would cover an injury that resulted from a medication error, misdiagnosis, or other professional mistake.

Some professionals need to carry general liability or malpractice insurance in order to get licensed, depending on their type of business and the laws in their state. Because malpractice claims tend to be expensive, general liability insurance costs less than a malpractice policy.

It's easy to get free quotes for E&O insurance and malpractice insurance with Insureon. We'll ask for basic facts about your business to help find the right coverage to match your risks, budget, and state requirements.

For most policies, you can get quotes through our online application. If you're not sure what types of insurance your business needs, you can speak with a licensed insurance agent. Once you choose an insurance policy, you can usually get coverage and your certificate of insurance within 24 hours.

If you're looking for malpractice coverage, contact our dedicated medical malpractice insurance specialist for more information or to get started.