Errors & Omissions Insurance Key Terms

Terminology that's good to know when you're looking for coverage

By Kimberly Huber

Errors and Omissions insurance, usually called E&O insurance, covers parties involved in a service-type business in the event they are sued for errors, omissions or failure to perform services as expected. In the medical field, it's called malpractice insurance, and lawyers call it professional liability. However, E&O insurance offers more coverage than just a general liability policy. The following terms should help you understand what E&O insurance is and the common terminology used in these policies.

Claim limit and annual amount

The claim limit of E&O insurance refers to the maximum amount the insurance company will pay on a claim for a single occurrence. The annual amount is the maximum amount the insurance company will pay out in a single year for all claims.
Try: Find Insurance offers an insurance-finding website that includes details on errors and omissions insurance.

Claims-made policy

A claims-made E&O insurance policy refers to coverage that becomes active when a claim is both made and reported to the insurance company in one policy term or period. The coverage amount is as high as the amount you have left at the time the claim is made.
Try: See more information on claims-made policies on the American Insurance Professionals.

Professional liability

E&O insurance also encompasses professional liability insurance and malpractice insurance. These policies cover negligence in performing professional duties or the failure to perform professional duties. However, policies do not cover illegal acts.
Try: The Insurance Information Institute provides information on E&O insurance policies and what they cover.

Tail coverage or extended reporting period

This is an extension policy on an policy that has been canceled. The tail coverage or extended reporting period covers claims made after the policy ends.
Try: The Errors & Omissions Insurance Resource Center answers some basic questions regarding E&O insurance.

Defense costs and damage awards

Defense costs and damage awards are what E&O insurance policies typically cover. No matter what the claim, the policy will pay these. The defense costs of even a nuisance claim can be thousands of dollars, and an E&O policy is set up to cover these.
Try: Axis Insurance Services offers an explanation of defense costs and damage awards in E&O insurance policies.

Occurrence policies

These policies offer coverage when an event or occurrence triggers it. The event must occur, but not necessarily be reported or filed, during the policy term or period. No matter when a claim is made, the policy will cover the event that occurred during the insured period.
Try: The World Chiropractic Alliance has an article that explains the difference between claims-made and occurrence policies.