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Errors & Omissions Insurance for Consultants

Errors and Omissions Insurance for Consultants

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Consultants are tasked with boosting the fortunes of other businesses, which often means there are high expectations to deliver results. In this high-stakes environment, clients depend on the advice of consultants to drive their vision and improve their prospects. Any mistake can hamper business growth for the client and have lasting effects on the future of their company. While many clients may simply cut ties with a consultant if things go wrong, others may seek damages through legal channels if they think your consulting business is at fault.

What is Errors and Omissions Insurance for consultants?

Errors and Omissions (E&O) Insurance can protect your firm from financial loss if it is sued by a client following perceived mistakes. Among the benefits of Errors and Omissions Insurance is covering the cost of lawsuits and paying any settlements or judgments made against your company. Whether you are an independent consultant or a major organization, potential legal action against your business is the main reason you should seek out Errors and Omissions Insurance.


As a consultant, you should view Errors and Omissions Insurance as a required investment, not least because the fabric of your business is based on the consultant-client relationship. Sometimes that relationship can fracture, and your client’s perception of your performance could result in a lawsuit if they do not receive the results they expected.

It is worth noting, in most cases, legal action is not necessarily a reflection on the quality of your work. Either way, whether you truly made a mistake or not, having Errors and Omissions Insurance protects you. Importantly, consultants should ensure their policy is always active as clients have the ability to take court action months and even years after a contract has ended.

Why do consultants need Errors and Omissions Insurance?

Consultants provide a wide range of services to clients with differing needs. Maybe you are a retail consultant helping a client reach their sales goal for a year or a PR consultant providing advice and services towards expanding the advertising reach of a client. Whatever the situation, the risks involved fall entirely on your consulting business and your specialty.

Some legal claims against consultants are legitimate, meaning a consultancy did make a mistake in their service that cost the client money. Other times, legal action can be frivolous and based on impossible expectations on the client’s part. Whether you cost a business hundreds of thousands of dollars or are defending the reputation of your consulting firm, E&O Insurance provides necessary protection. With this coverage, you will be able to protect your business without losing out financially.

What does Errors and Omissions Insurance for consultants cover?

As with all insurance products, policies differ from one insurance provider to the next, making it important to read policy details carefully and understand what protection the policy offers. However, most standard Errors and Omissions Insurance policies will protect your consulting business against the following situations:

What are the key exclusions to Errors and Omissions Insurance for consultants?

An important part of understanding your Errors and Omissions Insurance policy is knowing in what situations you will not be covered.

Is Errors and Omissions Insurance required for consultants?

The quick answer is, “It depends.” Some clients will demand a consultant is adequately insured before agreeing to do business. For the client, the reasoning behind demanding E&O Insurance from consultants is based on knowing they will be compensated if your business does something wrong. In many situations, consultants without E&O coverage will be removed from the running by a client deciding which consultancy to choose.

While Errors and Omissions Insurance is not legally mandated like commercial auto insurance, many clients may demand to see proof of coverage. Think of E&O Insurance as simply another investment in your business—something that will add value to the service you provide. Demonstrating that you have proper coverage will signal to potential clients that you take your business seriously.

What is the limit of liability for Errors and Omissions Insurance?

When searching for the best policy for your consulting business, you will face a significant choice: what should your limit of liability be? The limit of liability is the maximum amount of money that your insurance company will pay in the event of a claim. The higher the limit of liability, the more coverage your business will have, and the more expensive your insurance premiums will be.

The limit of liability is typically assessed as a per claim/aggregate. This means you select a limit of liability, for example $3 million per claim/$3 million aggregate. Under these terms, you will receive a maximum coverage of $3 million for any claim you make. However, the aggregate means the insurance company will only pay this amount in total (in our example, $3 million) per policy year. In other words, if a single claim or multiple claims exceed the aggregate, the insurer will not cover the cost above $3 million.

Does Errors and Omissions Insurance have a deductible?

A deductible is the total your consulting firm will need to pay if it experiences a loss before the insurance company’s coverage goes into effect. When you purchase errors and omissions insurance, you will be able to choose your level of deductible, with the insurer offering different amounts.

At its core, a deductible’s purpose is for you to share some of the risk with the insurance company, and this ensures you work extra hard to avoid mistakes that would result in legal action against your consultancy.

Of course, there are no guarantees you can avoid those situations, which is where the risk element of deductibles comes into play. Still, it is worth noting that many insurance companies will offer a deductible of $0, meaning you will never have to pay out on a legitimate claim before the policy is enacted. This sounds good, but lower deductibles drive up the cost of the insurance premium.

The higher the deductible you choose, the lower your premiums will be.

Is Errors and Omissions Insurance a claims-made policy?

Errors and Omissions Insurance policies are claims-made policies. Essentially, this means they are claims-based, and coverage only triggers when you file a claim. The opposite of claims-made coverage is occurrence-based, which triggers coverage when an accident or event occurs (think of auto insurance), instead of when reporting of the claim.


Claims-made policies help you if a client returns years down the line, but they can also cause problems. If a claim is submitted after a policy expires, your business will not be protected even if you had E&O insurance when the incident that caused the legal action happened.

Retroactive Date

For claims-made policies, an important concept to understand is the retroactive date. This date, which is specified in your policy, tells you the earliest date that work your consulting firm has performed will be covered. Any work done before the retroactive date will not be covered, even if you currently have active coverage.

Ideally, you want to set your retroactive date to the first date that your consulting business started to have clients, which would protect all the work you’ve done. If you drop your E&O coverage or have a gap in coverage, you may lose all insurance protection for the work you’ve done in the past.

Extended Reporting Period

Many E&O policies come with an extended reporting period, which gives you additional time to report claims for work performed while the policy was still active. This period is commonly 3-6 months.

With some insurance policies, you have the option to buy a longer extended reporting period, which can be multiple years or even an unlimited reporting period in some cases. The cost to purchase this extended reporting period is usually priced as a percentage of the original premium from the policy that is expiring.

Changing Insurance Carriers

When you change insurance providers with claims-made policies, it is critical that you have the new policy’s retroactive date set to the same date as your existing policy. If you don’t have the retroactive date set to the same date as your previous policy, you’ll lose insurance coverage for all work performed before the new retroactive date.

If the new insurance company isn’t willing to set your retroactive date to the same as your old policy, then you’ll need to try to purchase an unlimited reporting period from either your old insurance company or on the open market.


If you are closing your consulting firm due to retirement, it’s wise to shop for an unlimited reporting period for your E&O Insurance so that you’ll be covered for all the work you’ve done during your career. If you cancel your policy without buying an unlimited reporting period, you’ll lose all insurance coverage for work done before retirement.

If you are retiring from your consulting firm, but your firm continues to operate, you’ll have coverage under their E&O insurance as long as the firm continues to maintain coverage.

How much does Errors and Omissions Insurance cost?

The cost of E&O Insurance can vary greatly and can be assessed based on various factors, such as your business’s location, size of business, and the amount of coverage needed.

Policy limits drive the cost of premiums, as they determine how much coverage a consultancy receives, based on the per claim/aggregate model. Smaller businesses are best served by selecting a policy limit that accurately reflects their risk exposure.

Naturally, the policies that come with the most coverage will cost more to purchase. That said, there are always ways to lower insurance costs without having to cut corners and leaving your business unprotected.

Final Word

As you look to protect your business with the right set of insurance policies, consider Errors and Omissions Insurance one of the most important policies to secure. For consultants, your day-to-day work exposes you to significant professional liability, and not only will E&O Insurance help protect your business from claims against the services you provide, but many clients will also expect your firm to carry this coverage. Just one significant lawsuit has the potential to, in the best scenario, consume your resources and time, and in the worst scenario, bankrupt your firm. A solid Errors and Omissions Insurance policy can provide you and your employees with the financial protection to withstand any legal claims related to your professional work.

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