Protecting One’s Practice: The Essentials of Errors & Omissions Insurance

Errors and Omissions Insurance (E&O Insurance) is a type of professional liability insurance that protects businesses and professionals from claims made by clients for negligent acts, mistakes, or omissions in the services they provide. If a professional makes an error or fails to perform a service that causes a financial loss to a client, this insurance helps cover legal defence costs, settlements, or judgments — even if the claim is unfounded.

This type of insurance is especially important in service-based industries, including consulting, IT, finance, and particularly law. In the legal industry, it is commonly referred to as legal malpractice insurance, in the world of finance, it is also often called professional indemnity insurance. It protects lawyers, law firms and company secretaries from claims that might arise due to issues like missed deadlines, incorrect advice, or misfiling of documents. It can protect a CA firm from claims arising out of mistake of junior associates resulting in error in the tax return that leads to tax notice in future.

Real-World Scenario: Imagine a law firm is sued by a former client who claims the firm gave improper advice that led to financial loss. Even if the court rules in favour of the firm, legal defence alone could cost lakhs of rupees. With E&O insurance, the insurer covers those costs, helping the firm stay financially stable.

Examples:

"The law firm maintained comprehensive errors and omissions insurance to protect against potential malpractice claims arising from missed court deadlines or misinterpretation of legal statutes."

“As a freelance software developer, I purchased errors and omissions insurance to protect myself in case a bug in my code causes financial loss to a client.”

Without E&O insurance, even a small oversight could lead to costly lawsuits that may seriously impact a firm’s reputation and financial stability.

Key Coverage Areas

• Mistakes, oversights, or errors made during the normal course of work

• Failure to meet contractual obligations or deadlines

• Breach of professional duty or standard of care

• Professional negligence and misrepresentation

• Legal costs, including attorney fees and court expenses

• Some policies extend to libel, slander, defamation, and infringement of intellectual property (e.g., copyright or trademark)

What E&O Insurance Does Not Cover

• Criminal acts, intentional misconduct, or fraud

• Bodily injury or property damage (typically covered by general liability insurance)

• Employee injuries, cyber liability, or discrimination claims (require separate policies)

• Pre-existing issues or claims made before the policy start date (unless retroactive coverage applies)

• Contractual penalties specified in service agreements

Who Needs E&O Insurance?

Any professional or business that provides specialized advice or services for a fee should consider E&O coverage. This includes:

• Lawyers and law firms

• Company Secretary firms

• Chartered Accountant firms

• Financial advisors and planners

• Insurance agents and brokers

• Real estate professionals

• Consultants, engineers, architects, and IT service providers

• Medical professionals (as malpractice insurance)

• Event planners, designers, and content creators

Key Factors Influencing E&O Insurance Costs in India

1. Industry Risk Profile: Professions with higher risk, such as legal services, healthcare, or engineering, typically face higher premiums due to the potential for significant financial losses resulting from errors or omissions.​

2. Business Size and Revenue: Larger companies with higher revenues may pay more for coverage, as they often have greater exposure to potential claims.​

3. Claims History: A history of previous claims can increase premiums, as insurers may view the business as higher risk.​

4. Coverage Limits and Deductibles: Higher coverage limits provide more protection but come with increased premiums. Conversely, opting for a higher deductible can reduce premium costs but requires the insured to pay more out-of-pocket in the event of a claim.​

5. Policy Customization: Tailoring your policy with specific endorsements or extensions, such as coverage for intellectual property infringement or employee dishonesty, can affect the overall cost.​

Estimated Cost Range

While exact figures can vary, small to medium-sized enterprises in India might expect to pay premiums starting from ₹10,000 to ₹50,000 annually for basic E&O coverage. However, businesses in high-risk industries or those requiring higher coverage limits may see premiums exceeding ₹1,00,000 per year.

Bottom Line

E&O insurance is not just a financial safeguard—it is a cornerstone of risk management for professionals. For all those, whose business offers professional services, especially in high-stakes fields like law and finance, it is vital to have this protection in place.