Professional Liability Insurance (E&O) Explained: Do You Need It? (2025)

A consultant I know got sued last year because a client claimed her advice cost them money. She’d done a market analysis, recommended they expand into a new region, it didn’t work out. Client said her analysis was flawed. Wanted $150,000 in damages.

Was the analysis actually flawed? Debatable. Markets are unpredictable. But that doesn’t matter when you’re staring at a lawsuit. What mattered was she had professional liability insurance—E&O coverage—and it paid for her legal defense and eventual settlement.

Without it she’d have been personally on the hook. For doing her job. Because a client was unhappy with the outcome.

This is the gap that professional liability fills. general liability insurance covers physical stuff—injuries, property damage. Professional liability covers the intangible stuff—your advice, your work product, your professional mistakes.

What professional liability covers

Also called Errors and Omissions (E&O) insurance. Covers claims arising from your professional services:

Mistakes you make. Gave wrong advice. Made an error in a report. Missed something important.

Things you should have done but didn’t. Failed to meet a deadline. Didn’t include something in a contract. Overlooked a requirement.

Negligence claims. Client says you didn’t perform to the standard expected of a professional in your field.

Covers legal defense costs even if the claim is bogus. That’s huge. Defending yourself against a frivolous lawsuit still costs money. E&O pays for lawyers even when you did nothing wrong.

Who needs it

Anyone who gives professional advice or provides professional services. Not just obvious ones like doctors and lawyers (they have their own specialized versions—malpractice insurance). Also:

Consultants of any kind. Management, marketing, IT, financial.

Accountants and bookkeepers.

Real estate agents.

Insurance agents (ironic but yes).

Architects and engineers.

Web designers and developers.

Graphic designers.

Freelance writers and editors.

IT professionals.

Basically if a client could sue you claiming your work was substandard or caused them harm, you need E&O.

General liability doesn’t cover this

Common mistake. People think “I have liability insurance” and assume they’re covered. General liability covers bodily injury and property damage. Someone trips in your office, that’s general liability. You give bad advice that costs a client money? General liability won’t touch it.

These are different types of risk requiring different coverage. Many businesses need both.

What it costs

Depends on your profession, revenue, coverage limits, claims history. Rough ranges:

Low-risk consultant: $500-1,500/year

IT professional: $1,000-3,000/year

Accountant: $1,500-4,000/year

Architect/engineer: $2,000-10,000+/year

Higher-risk professions with bigger potential claims cost more. Makes sense.

Claims-made vs occurrence

Professional liability is usually “claims-made” which means it covers claims made during the policy period, regardless of when the incident happened. Different from “occurrence” policies that cover incidents during the policy period regardless of when claims are filed.

Why this matters: if you cancel a claims-made policy and someone sues you later for work you did while covered, you might not be covered. You can buy “tail coverage” to extend protection after policy ends but it costs extra.

Confusing? Yes. Important? Also yes. Ask your insurance agent to explain how your specific policy works.

That consultant’s situation

Her policy had $500,000 in coverage with a $2,500 deductible. Legal defense costs were around $40,000. Settlement was $35,000. She paid her deductible and insurance handled the $72,500 rest.

Without coverage she’d have faced bankruptcy probably. For giving professional advice that a client didn’t like the outcome of.

Collision keeps walking across my keyboard—she’s done this three times while I’ve been writing this—but the point is if you’re a professional providing services, E&O coverage is essential. The alternative is betting your entire financial future that no client ever sues you. Bad bet.