What is the main purpose of errors and omissions insurance?

The main purpose of errors and omissions insurance, often referred to as E&O insurance, is to protect professionals from claims arising out of negligence, mistakes, or failures to perform their professional duties. This type of coverage is particularly essential for service-oriented professionals, such as consultants, real estate agents, insurance agents, and attorneys, who may face lawsuits related to their professional services.

In essence, E&O insurance provides a safety net against legal claims that can arise if a client believes they suffered a loss due to the professional's error or omission in their services. For example, if a financial advisor makes a mistake that results in a client losing money, the client might file a claim. With E&O insurance, the professional would be covered for defense costs and any settlements or judgments resulting from such claims.

This form of insurance is not intended to address property damage caused by natural disasters or to provide higher policy limits for existing policies. Instead, it specifically targets the risks associated with delivering professional services, making it an essential component for those in certain fields where the possibility of litigation is a reality.