Errors And Omissions Insurance - E&O

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DEFINITION of 'Errors And Omissions Insurance - E&O'

A professional liability insurance that protects companies and individuals against claims made by clients for inadequate work or negligent actions. Errors and omissions insurance often covers both court costs and any settlements up to the amount specified on the insurance contract.

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BREAKING DOWN 'Errors And Omissions Insurance - E&O'

E&O insurance can be obtained by insurance brokers/dealers, registered investment advisors and financial planners, among others. It is often required by regulatory bodies such as FINRA or company investors.

In the financial industry, lawsuits will happen, regardless on how baseless the claims may be. Clients sometimes sue an advisor or broker after an investment goes sour, even if the risks were well known and within the guidelines established by the client. In these cases, even if a court or arbitration panel finds in favor of a broker or investment advisor, the legal fees can be very high and E&O insurance is vital in these situations. A person or company that has had numerous litigation problems has a higher underwriting risk and will find E&O insurance to be more expensive or less favorable in its terms as a result.

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