Does Errors & Omissions Insurance Cover Breach of Contract Claims?

Understanding whether Errors and Omissions (E&O) insurance covers breach of contract claims is crucial for small business owners. Let's explore this complex topic in detail, examining the coverage, limitations, and important considerations.

The Basics of E&O Insurance

Errors and Omissions insurance, also known as professional liability insurance (PLI), is designed to protect professional service providers from claims related to negligence, failure to perform, and financial loss caused by errors or omissions in the services provided.

This specialized coverage helps protect professionals and companies from bearing the full cost of defending against negligence claims made by clients in civil lawsuits. It specifically focuses on alleged failures to perform, financial losses caused by errors, and omissions in services or products - situations that typically wouldn't be covered by general liability insurance.

Breach of Contract Coverage: The General Rule [1]

Here's what you need to know about breach of contract coverage under E&O insurance:

Professional liability insurance typically does NOT include coverage for:

Breach of contract
Breach of warranty
Intellectual property issues
Personal injury
Security issues
Cost of contract

Why Most E&O Policies Exclude Breach of Contract [1]

Generally, damage caused by contractual liability is not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured, but there are important limitations to understand [2].

Learn more about these exclusions in our comprehensive Errors and Omissions Insurance Exclusions Guide.

Understanding Coverage Limitations

It's important to note that E&O policies can vary significantly in their coverage. While some policies are designed to meet minimum approved standards, others differ dramatically in their protection levels. For example:

Some policies may include breach of duty if the incident occurred and was reported during the policy period
Coverage wording can be confusing, especially for non-lawyers
The interpretation of "negligent act, error or omission" varies between policies

For a detailed comparison, read our guide on Professional Liability vs Errors and Omissions Insurance [1].

Claims-Made Coverage Structure

E&O policies are typically "claims-made-and-reported" policies, meaning they only apply to claims that are:

First made AND
Reported during the insured's individual policy period

There is no coverage for claims that arise after the policy period ends unless an extended reporting period is in place.

Learn more about the basics of E&O coverage on our Errors and Omissions Insurance page [[3]](https://krec.ky.gov/Documents/2021 E&O Info for Website.pdf).

Professional Liability Considerations

E&O insurance may cover incidents such as:

Errors resulting in loss of client data
Software or system failures
Claims of non-performance
Negligent overselling of services
Reputation damage from incorrect information
Data privacy breaches

For comprehensive protection, visit our Professional Liability Insurance guide [2].

Best Practices for Protection

To maximize your protection against breach of contract claims:

Maintain continuous coverage without gaps
Pay premiums on time
Understand your retroactive date
Be aware that gaps in coverage can leave you exposed to claims from services rendered during the lapse period

The Cost Factor [[3]](https://krec.ky.gov/Documents/2021 E&O Info for Website.pdf)

Many small businesses struggle with the high cost of professional liability insurance premiums. The United States is the largest market for liability insurance, representing 51% of global liability premiums. In 2013, US businesses spent approximately $12 billion on E&O insurance alone.

Conclusion [2]

While E&O insurance is essential for professional service providers, it typically doesn't cover straightforward breach of contract claims. Learn more about what is and isn't covered in our article Does Errors and Omissions Insurance Cover Breach of Contract.

For an exclusion clause to be effective, it must specifically cover the breach in question. Courts generally recognize two types of liability:

Strict liability (liability without fault)
Liability for negligence (liability due to fault)

Courts tend to interpret any ambiguity strictly against the party relying on the exclusion clause, making it crucial to understand your policy's exact terms and limitations [4].

Remember to consult with insurance professionals and legal experts to ensure you have appropriate coverage for your specific business needs and risks.

Sources

Professional liability insurance - Wikipedia
Liability insurance - Wikipedia
[Errors and Omissions Renewal Information](https://krec.ky.gov/Documents/2021 E&O Info for Website.pdf)
Exclusion clause - Wikipedia