The construction industry plays a key role in driving the U.S. economy, contributing 4% to the GDP and having a market value of $2 trillion. However, contractors face major risks, with $1.8 trillion in global losses tied to inaccurate data, including $88 billion in avoidable rework costs.
These figures show how even small mistakes can lead to significant financial consequences. Running a contracting business means handling multiple projects, meeting client needs, and maintaining quality standards.
But no matter how careful you are, errors happen. A small oversight or missed detail can lead to disputes or lawsuits, creating financial and reputational risks for your business.
That’s where Errors and Omissions (E&O) insurance helps. It protects contractors from claims of negligence, mistakes, or omissions in their work. E&O insurance offers peace of mind, so you can focus on completing projects and growing your business without constantly stressing about potential risks.
In this post, we’ll explain what E&O insurance is, who needs it, what it covers, and why it’s essential for contractors like you.
What is Errors and Omissions Insurance?
Errors and omissions (E&O) insurance, also known as professional liability insurance, protects your contracting business from monetary losses resulting from claims of negligence, mistakes, or oversights in the services you provide.
It’s specifically designed to cover risks that can arise when something goes wrong, even unintentionally, during your professional work.
Additionally, E&O insurance protects your business against lawsuits or claims stemming from dissatisfied clients or project-related challenges, offering essential coverage for unforeseen liabilities.
Who Needs E&O Insurance?
Errors and omissions (E&O) insurance is essential for businesses offering professional services, especially in the contracting and construction industries.
If your business provides expert advice, designs, or services that clients rely on, this coverage is crucial to protect against potential claims of negligence or mistakes.
Here are some examples of who benefits from E&O insurance:
- General contractors
- Specialty contractors (electricians, plumbers, HVAC technicians, masons, painters, roofers)
- Architects and engineers
- Home inspectors
- Consultants and project managers
- Interior designers
- Landscape architects
- Surveyors
- Design-build contractors
- Real estate developers
- Structural consultants
E&O insurance is not just for large firms—it’s equally valuable for small and medium-sized businesses.
If your business operates in the construction or contracting industry and deals with high-value projects or complex services, E&O insurance provides the protection you need to focus on delivering exceptional results.
What Does Errors and Omissions Insurance Cover?
Unlike general liability insurance, which addresses physical injuries or property damage, E&O insurance specifically covers claims tied to errors in the services you provide.
Here’s what E&O insurance typically covers:
- Errors in professional services: Protects your business when a mistake during a project leads to financial harm for your client, such as incorrect measurements or miscalculations.
- Omissions in work: Covers claims resulting from incomplete or missing work that causes financial losses or project delays.
- Negligence claims: Protects your business when a client alleges that your actions, or failure to act, caused them harm or financial loss, even if the accusation is without merit.
- Misrepresentation: Addresses claims where your advice or information provided to the client was deemed misleading or incorrect, causing financial harm.
- Legal fees and court costs: Covers attorney fees, court expenses, and settlements or judgments if a claim against your business goes to trial.
- Subcontractor mistakes: Offers coverage if errors made by subcontractors under your management result in claims against your business.
- Failure to meet client expectations: Protects against claims that your services didn’t meet agreed-upon standards or project goals, leading to financial losses.
Real-World Example
Imagine a contractor misinterprets a building regulation, leading to delays and costly redesigns for the client. With E&O insurance, your business is protected against the legal and financial fallout from such claims.
What E&O Doesn't Cover?
Errors and omissions (E&O) insurance provides critical protection for contractors, but it has limitations. Understanding what isn’t covered helps you avoid surprises and plan for additional coverage if needed.
Here’s what E&O insurance typically doesn’t cover:
- Employee injuries or illnesses: Workers' compensation insurance handles medical costs and lost wages for workers who are wounded or fall ill due to work-related incidents; this is not covered by E&O policies.
- Intentional wrongdoing or illegal acts: Claims stemming from fraudulent, dishonest, or illegal actions are excluded from coverage.
- Employment practices issues: Wrongful termination, harassment, or discrimination claims require employment practices liability insurance.
- Intellectual property disputes: Issues like copyright infringement or misuse of trade secrets fall outside the scope of E&O insurance.
- Data breaches or cyberattacks: Losses from hacking or compromised client data require cyber liability insurance.
What Other Insurance Policies Can Contractors Use?
E&O insurance is a valuable tool, but it works best when paired with other policies to create comprehensive protection for your business.
Here are key insurance policies contractors should consider:
- Workers' compensation insurance: Covers medical fees and lost wages for employees who experience injuries or illnesses while performing their job duties.
- Builder’s risk insurance: Protects materials, equipment, and structures during construction projects against risks like fire, theft, or vandalism.
- Inland marine insurance: Protects tools, equipment, and materials during transit or while stored at locations away from your primary business site.
- Commercial auto insurance: Offers protection for cars used in your business operations, covering accidents, damage, and liability.
- General liability insurance: Safeguards against claims of bodily injury or property damage to third parties, such as a client slipping at a job site or accidental damage to a customer’s belongings.
- Subcontractor default insurance: Protects your business if subcontractors fail to complete their work or meet quality standards, leading to project delays or additional costs.
At TWFG Khan Insurance, we understand the unique challenges contractors face, and we’re here to help you build a robust insurance portfolio. From workers’ compensation and builder’s risk insurance to specialized policies like E&O and inland marine insurance, we provide solutions tailored to your specific needs.
- Customized insurance strategies: Our team works with you to design coverage that addresses the risks unique to your business and operations.
- Access to top-rated carriers: We connect you with trusted insurers, ensuring competitive rates and comprehensive protection.
- Expert guidance: Navigating insurance options can be complex, but our expertise simplifies the process and helps you make informed decisions.
How Much Does an E&O Policy Cost?
On average, contractors can expect E&O premiums to cost around 1% of annual revenue, but this is a general guideline. For example, a contractor with $1 million in annual revenue might pay approximately $10,000 per year for an E&O policy.
The cost of errors and omissions (E&O) insurance coverage can vary depending on several factors unique to your business. Here’s what typically influences the premium:
- Annual revenue: Higher revenue often means higher premiums, as the potential liability increases with the scale of your operations.
- Type of work: Certain trades, like architects or electricians, may face higher risks and, therefore pay more for coverage.
- Geographical location: Insurance costs can vary by state or region due to differing regulations and risk levels.
- Claim history: Businesses with a history of previous claims may face higher premiums because they are considered more risky.
- Policy limits and deductibles: Choosing higher coverage limits or lower deductibles will increase the cost of your policy.
- Number of employees: A larger workforce can increase premiums, as there’s a greater chance of errors or omissions occurring.
- Project complexity: If your business handles high-value or complex projects, the cost of coverage may reflect these elevated risks.
At TWFG Khan Insurance, we understand that managing insurance costs while ensuring comprehensive coverage is a priority for contractors. Our team helps you secure the right coverage at a competitive price by assessing your unique needs and offering cost-saving strategies, such as bundling policies or adjusting deductibles.
Let us simplify the process so you can focus on protecting your business while staying within budget.
The Important Components of Professional Liability Insurance Policy
Understanding the critical components of a professional liability (E&O) insurance policy is essential to ensure you get the right coverage for your contracting business.
Here are the key elements to consider:
1. Coverage Limits
Coverage limits define the maximum amount your insurance provider will pay for claims.
- Per-claim limit: Specifies the maximum payout for a single claim.
- Aggregate limit: Indicates the total payout for all claims during the policy period.
- Choose coverage limits that align with the size and complexity of your projects to avoid gaps in protection.
2. Policy Exclusions
Policy exclusions are scenarios or conditions that the insurance will not cover.
- Intentional acts: Deliberate misconduct or fraud is not covered.
- Illegal activities: Claims involving violations of the law are excluded.
- Review exclusions carefully to understand what’s not included in your policy and consider additional coverage if needed.
3. Deductibles
A deductible is the amount you must pay out-of-pocket before your insurance covers the remaining expenses of a claim.
- Opting for higher deductibles can reduce your insurance premium but will require you to pay more upfront if you need to file a claim.
- Choose a deductible that balances affordability with financial protection.
4. Claims-Made Basis
Most E&O policies operate on a claims-made basis, meaning the policy must be active when the claim is made.
- Retroactive date: The policy may cover incidents that happened before the policy was purchased, provided they fall within the retroactive date.
- Tail coverage: Offers extended protection for claims filed after the policy ends, covering work done during the policy period.
5. Tailored Coverage
Customizing your policy ensures it meets the unique needs of your business.
- Add endorsements or riders for specific risks, such as subcontractor errors or design flaws.
- Work with an insurance provider to create a policy that fits your business operations and protects against common risks in your trade.
6. Policy Renewal and Review
Regularly reviewing and renewing your policy ensures it evolves with your business needs.
- Revise your policy annually to reflect changes in your revenue, workforce, or project scope.
- Stay informed about changes in industry regulations that may impact your coverage requirements.
Understanding these components can help you select a professional liability insurance policy that protects your business against unexpected claims and ensures long-term stability.
Why Choose TWFG Khan Insurance for Your E&O Coverage?
Understanding the intricacies of Errors and Omissions (E&O) insurance requires a partner who understands the unique challenges contractors face.
At TWFG Khan Insurance, we specialize in providing tailored professional liability insurance solutions that safeguard your business from financial and legal risks.
Here’s how we make a difference:
- Customized coverage for contractors: We recognize that every trade, from general contractors to specialty professionals like electricians and plumbers, comes with its own set of risks. Our policies are designed to match your specific needs, ensuring no gaps in coverage.
- Expert guidance: With years of experience in the contracting and construction industries, our team helps you understand policy components such as deductibles, coverage limits, and exclusions. We ensure you’re fully protected without overpaying for unnecessary features.
- Access to top-rated carriers: We partner with leading insurance providers to offer comprehensive policies at competitive rates, ensuring you get the best possible coverage for your business.
- Risk management support: Besides insurance, we provide insights and recommendations to minimize risks in your daily operations. This proactive approach helps prevent claims before they occur, saving you time and money.
- Seamless claims approach: In the event of a claim, our dedicated team simplifies the process. From filing to settlement, we guide you every step of the way, ensuring a hassle-free experience.
E&O insurance is more than a policy—it’s your business’s safety net. Don’t leave your operations vulnerable to costly lawsuits and claims. At TWFG Khan Insurance, we’re committed to helping you protect your livelihood and focus on what you do best.
Get a quote with us today and discover how our tailored coverage can provide peace of mind and security for your contracting business.
