E&O and D&O insurance sound similar enough that it’s easy to confuse them. However, they provide very different forms of liability coverage, and many companies need both insurance products to shield them from expensive lawsuits.
What Is D&O Insurance?
D&O stands for directors and officers, and as the name suggests, D&O insurance provides protection for a company’s leaders, as well as the company itself, covering legal costs for claims stemming from their actions while serving the company. Common claims involve breach of fiduciary duty and misrepresentation. D&O insurance is often associated with shareholder and securities lawsuits, but it can also cover claims from other sources, such as vendors, donors, and customers.
What Is E&O Insurance?
E&O stands for errors and omissions, and it provides coverage for claims alleging negligence in professional services. Common claims involve missed deadline, breach of contract, and work that fails to meet industry standards. Some industries have specialized E&O insurance. For example, tech E&O insurance provides coverage for tech companies against claims alleging buggy software or system failures.
How Do E&O and D&O Insurance Differ?
Both E&O and D&O insurance provide financial liability coverage. In other words, both types of insurance provide coverage for lawsuits alleging financial loss due to the actions of the individuals at a company. However, beyond this broad similarity, the types of lawsuits covered by E&O versus D&O are different in nature.
Simply put, E&O coverage focuses on professional liability, while D&O coverage focuses on management liability. According to IRMI, D&O insurance can be thought of as “management E&O” because it provides protection for errors and omissions associated with management decisions.
For example, consider a software company that provides a digital platform for other businesses. An upgrade to the platform contains flaws that result in an outage, disrupting business for clients. If the clients file lawsuits alleging financial loss due to services that fail to meet professional standards, the claim would likely be covered under a tech E&O policy. If investors file a lawsuit alleging that the company misrepresented the testing process used for updates and understated the risks (a management decision), the resulting claim would likely be covered under the company’s D&O policy.
Indeed, something similar has impacted CrowdStrike after a flawed update led to widespread outages in 2024. Reuters says that one of the impacted clients, Delta Air Lines, has filed a lawsuit alleging that the outage forced the airline to cancel 7,000 flights. Another Reuters article says shareholders filed a lawsuit against CrowdStrike alleging that the company defrauded them by concealing the risks posed by inadequate software testing.
Coverage Exclusions
If you’re still thinking that you don’t need E&O insurance because you have D&O coverage, the contractual liability exclusion may change your mind.
D&O policies regularly cover breach of fiduciary duty claims, such as allegations of conflicts of interest or misrepresentations that result in financial loss for the company and its stakeholders. However, D&O policies do not typically cover breach of contract claims, such as allegations that a company missed a deadline or otherwise failed to meet the terms of contract due to negligence. D&O Diary explains that long-standing case law has established that D&O policies do not cover breach of contract claims, and many D&O carriers have added exclusions to confirm this.
Do You Need D&O or E&O Insurance?
When determining what type of coverage you need, it’s not an either/or situation. Whether you need D&O coverage is completely separate from whether you need E&O coverage, and many companies need both to manage their risks effectively.
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Do you need D&O insurance? It’s widely accepted that public companies need D&O coverage due to the risk of securities litigation. However, private companies may also need coverage, especially if they are leveraging Reg A or Reg CF crowdfunding opportunities. Nonprofits also have D&O risks and can benefit from coverage.
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Do you need E&O insurance? Anyone offering professional services that could result in financial losses if mistakes or oversights are made can benefit from E&O insurance. This includes companies in a wide range of industries, from real estate to financial services to architecture. Companies offering software, website design or other tech services can benefit from tech E&O.
Do you have the liability coverage you need? Don’t let confusion over policy types leave you exposed to uncovered lawsuits. Contact me for a review of your D&O and E&O coverage.
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