I was asked in a meeting today, what’s the Difference Between D&O Insurance and E&O Insurance?

D&O (Directors and Officers) insurance and E&O (Errors and Omissions) insurance are two different types of insurance policies that provide protection to businesses and individuals in different ways.

D&O insurance is designed to protect directors and officers of a company from personal financial loss resulting from claims of wrongful acts committed in their capacity as directors and officers.

This type of insurance covers claims related to breach of fiduciary duty, negligence, misrepresentation, and other similar acts that can lead to legal action against directors and officers.

D&O insurance does not cover claims related to bodily injury, property damage, or other types of liability. These types of claims fall mostly under General Liability insurance.

Here’s a real-life claims scenario for Directors & Officers Liability:

A plaintiff filed a complaint against their competitor alleging that a former employee, now working for the competition, engaged in unauthorized use of confidential and proprietary information and committed other acts of unfair competition. As a result, the plaintiff alleges it has suffered an irreparable and immediate injury. In addition, the plaintiff alleges that the defendant has possession of its confidential information and intellectual property. The plaintiff asserts causes of action for misappropriation of trade secrets, confidential information, and unfair competition. Total Defense Cost and settlement exceeded $450,000.

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On the other hand, E&O insurance is designed to protect businesses and professionals from claims of negligence or mistakes in their professional services or advice.

This type of insurance covers claims related to errors, omissions, or other mistakes made by professionals in the course of their work that result in financial harm to their clients.

Very often, it is not the result of a mistake, but rather a displeasure with the outcome that gives rise to an E&O claim. Even frivolous lawsuits will incur defense costs!

E&O insurance is commonly purchased by professionals such as lawyers, accountants, doctors, and consultants that provide a service to others for a fee.

Here’s a real-life claims scenario for Errors & Omissions Liability:

A software developer sold timekeeping software to a company. After removing all previous timekeeping clocks and installing software, the customer discovered it did not function properly. It failed to correctly apply the hourly and overtime rate of pay resulting in over and underpaid employees and the need to replace the original time clocks. The company sued the provider of the software for damages and expenses resulting in $550,000.

In summary, D&O insurance is focused on protecting directors and officers from personal liability, while E&O insurance is focused on protecting businesses and professionals from liability arising from professional services or advice.

If there’s one thing I can emphasize about each of these coverages, even frivolous lawsuits will incur defense costs! No matter if you were in the right on a given matter but were sued by a third party for alleged wrongdoing, you must hire attorneys to defend these allegations. This is most often the biggest cost when it comes to a claim and an insurance policy is intended to defend you for actual or alleged wrongdoing.