What Protects Independent Contractors from Liability for Errors and Omissions?

Lucas Alvarez
Nov 18
4 min read

Contractors take on a lot of responsibility. Clients hire you for your expertise, whether you’re a consultant, designer, IT specialist, construction subcontractor, inspector, or any other professional service provider.

But even the most skilled professionals can make mistakes. A missed deadline, a miscommunication, or a simple oversight can lead to financial losses for your client and a claim or lawsuit against you.

So what coverage protects independent contractors from these types of liability? The answer is Errors and Omissions Insurance (E&O), also known as Professional Liability Insurance.

In this guide, we’ll break down what E&O insurance is, what it covers, who needs it, and how to protect your independent contracting business from costly professional liability claims.

What Is Errors and Omissions Insurance for Contractors?

Errors and Omissions (E&O) insurance, also called Professional Liability Insurance, protects contractors and small businesses from financial losses caused by:

Mistakes in your work
Missed deadlines
Oversights or inaccuracies
Failure to deliver services as promised
Professional negligence
Breach of contract

Unlike General Liability Insurance, which covers bodily injury and property damage, E&O insurance covers financial harm caused by your professional services.

What Does E&O Insurance Cover?

1. Professional Mistakes

If your work contains an error that leads to financial damage, E&O pays legal and settlement costs. Example: An HVAC consultant designs a system incorrectly, causing delays and extra expenses.

2. Missed Deadlines

If delays cost your client time or money, they may file a claim. Example: A contractor fails to complete a project by the stated date, causing the client to incur losses.

3. Negligence Claims

Even if the claim is false, you still need legal defense, and E&O covers those costs. Example: A client claims your work didn’t meet industry standards, even if you did nothing wrong.

4. Breach of Contract

If you unintentionally fail to meet contractual obligations, E&O can help cover the resulting damages.

5. Legal Defense Costs

Attorney fees, court costs, settlements, and judgments are typically covered, even if you’re not at fault.

What E&O Insurance Does NOT Cover

Errors & Omissions is powerful, but it doesn’t cover:

Employee injuries (covered by workers’ comp)
Physical property damage (covered by general liability)
Vehicle accidents (covered by commercial auto)
Intentional wrongdoing
Poor workmanship (covered under different policies depending on trade)

Understanding these boundaries helps contractors avoid gaps in coverage.

Why Independent Contractors Need Errors and Omissions Insurance

Independent contractors don’t have the legal protections of a large employer. Without the right insurance in place:

You’re personally liable
Your bank accounts, home, and assets could be at risk
A single claim could wipe out your business

Here’s why E&O is essential:

Clients Expect It

Many companies won’t hire contractors without proof of E&O insurance, especially in consulting, IT, engineering, real estate, or construction.

It Protects Your Reputation

When something goes wrong, E&O allows you to resolve disputes professionally without going bankrupt.

Claims Can Happen Even When You Did Everything Right

You can be sued even if you did nothing wrong, and the legal defense alone could cost thousands.

It Helps You Win Larger Contracts

Bigger clients require contractors to carry E&O before starting work.

Real-World Examples of E&O Claims Against Contractors

Example #1: Consultant Misses Key Detail

A construction consultant overlooks a structural detail that slows down a project. The client claims financial damages. E&O covers defense costs and settlement.

Example #2: IT Contractor Misconfigures Software

A freelancer misconfigures a software update, causing downtime for a business. The client demands compensation. E&O responds.

Example #3: Marketing Contractor Misses a Deadline

A missed deliverable causes a client to lose a promotional opportunity. They sue for lost revenue. E&O pays legal fees.

Example #4: Home Inspector Makes an Error

A missed defect results in costly repairs for the homebuyer. The inspector is sued, and E&O covers the claim.

How to Get the Right Policy

Getting the best E&O coverage comes down to working with an agency that understands contractor risks.

What you’ll typically need to get a quote:

Business details and description of work
Years of experience
Claims history (if any)
Client contracts or requirements
Revenue or project volume
Desired coverage limits

Common Mistakes Contractors Make (That E&O Insurance Solves)

Relying only on general liability insurance — it doesn’t cover financial losses.
Assuming small errors won’t cause lawsuits — clients sue over missed deadlines, communication issues, or minor mistakes.
Doing business without a contract — E&O provides protection even when details get complicated.
Underestimating legal defense costs — a minor claim can still cost thousands in attorney fees.

Protect Your Career and Business with the Right Coverage

As a contractor, you’re responsible for your work, and that means you’re also responsible for any financial losses your clients claim you caused.

Errors and Omissions Insurance is the protection that keeps your business secure, your finances safe, and your reputation intact.

Whether you're a consultant, a contractor, or a freelancer, this coverage is essential for long-term success.

Ready to protect yourself from the risks that come with professional services? Reach out to us for a quote today!