Do You Need D&O Insurance or E&O Insurance?

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What Is Directors and Officers (D&O) Insurance?

Directors and officers (D&O) liability insurance, also known as management liability insurance, protects business leaders – such as CEOs, board members, and executives – and their organizations in the event of allegations of missteps – such as breach of duty, negligence, or other alleged wrongful acts tied to their decisions.

A D&O insurance policy helps cover major financial risks, including legal defence costs, regulatory investigations, and potential settlements.

Here are some situations where a D&O insurance policy could provide protection when facing damage claims:

• Unfair business practices allegations
• Making decisions without the necessary authority
• Accusations of negligent professional behaviour
• Making misleading statements or inaccurate reporting
• Alleged acts of harassment or discrimination
• Breach of legal or fiduciary duties
• Conflicts of interest
• Releasing confidential, non-public information
• Allegations of mismanaging company funds
• Bad investment decisions
• Employment-related claims

What Type of Small Business Needs D&O Insurance?

Legal action targeting directors and officers can incur substantial costs and may put their personal assets at significant risk. 

Any small business with a board of directors, corporate officers, or executive decision-makers should consider D&O insurance coverage, including:

• Small, publicly held companies can face lawsuits from employees, shareholders, or other stakeholders for alleged mismanagement, wrongful termination, or other decisions made by directors or officers.

• Nonprofit organizations typically have a board of directors that makes crucial decisions. D&O insurance helps protect board members from personal liability in the event of lawsuits related to their decisions or actions on behalf of the organization.

• Family-owned businesses with multiple family members involved in management and decision-making can benefit from D&O insurance to address disputes or allegations of mismanagement.

• Professional services firms like consulting companies, law firms, and accounting practices. 

• Technology companies with executive decision-makers in product development, intellectual property, and investor relations.

• Community and homeowners associations with boards of directors that make decisions affecting the community.

• Schools, colleges, and educational nonprofits often have boards or trustees making critical decisions.

• Medical practices, clinics, and healthcare organizations with a board of directors or management team.

• Real estate companies with multiple stakeholders, including brokers, property managers, and executives.

• Manufacturers with a board or management team making decisions about production, quality control, and other aspects of the business.

What Is Errors and Omissions (E&O) Insurance?

Errors and omissions (E&O) insurance, also called professional liability insurance, is essential for small businesses and independent professionals who offer services or advice.

It provides critical protection against client lawsuits stemming from mistakes, oversights, or failure to meet contractual or professional obligations.

It applies to a broad range of professionals and covers legal defence expenses, settlements, and judgements, even if a claim is groundless.

Examples of claims that may be covered through E&O insurance include:

• Accusations of misconduct in services
• Erroneous work or incorrect advice
• Negligent professional behaviour
• Breach of contract allegations
• Project delays or missed deadlines
• Omitting important details in service or advice
• Failing to provide a service as promised

What Types of Businesses Need Errors and Omissions (E&O) Insurance?

Any business or professional that provides services, advice, or expertise where mistakes or oversights could lead to a customer’s financial loss should consider purchasing E&O insurance. 

Here are some examples of businesses and professionals that may benefit from E&O coverage:

• Management consultants, financial advisors, and business consultants to protect against claims of providing incorrect advice or recommendations.

• Real estate professionals may face claims from clients who allege errors or misrepresentations in property transactions, contracts, or disclosures.

• Financial planners and investment advisors giving financial planning, investment advice, or wealth management services.

• Accountants, bookkeepers, and tax professionals can face claims related to errors in financial statements, tax returns, or accounting advice.

• Architects, general contractors, and engineers in the construction and design industry may face claims related to design errors, building code violations, or construction defects.

• IT consultants, software developers, and technology experts may face claims for system failures, data breaches, or errors in software development.

• Allied health professionals, beauticians, therapists, and other health and wellness providers may face medical malpractice claims or errors in patient care.

• Designers, artists, content producers and creative professionals may face claims related to copyright infringement, design errors, or failure to meet client expectations.

• Event planners may be held liable for errors in event coordination, such as double bookings, vendor disputes, or failure to meet client expectations.

• Educational institutions, teachers and tutors may face claims about curriculum design, instructional materials, or academic advice.

• Environmental consultants providing services related to site assessments, remediation, or regulatory compliance may face claims for errors or oversights.

• Landscapers, lawn care professionals, and arborists need protection from claims arising from their professional services.

D&O vs E&O Insurance for Small Businesses: What’s the Difference and Which Do You Need?

The two policies are separate from the coverage they provide. Here are the primary differences:

• D&O insurance claims can come from different parties
  
  D&O insurance claims can come from employees, regulators, shareholders, or creditors, highlighting the broad liability risks for company leaders. 

  On the other hand, E&O insurance claims are generally made by third parties – namely, a business’s customers.

• D&O insurance may cover business leaders facing criminal allegations

D&O insurance may cover the defence costs of directors and officers named in criminal trials if found not guilty, but there are limitations.

For instance, D&O insurance does not cover legal expenses and damages for deliberately fraudulent or malicious acts proven in court.

By contrast, errors and omissions (E&O) insurance does not provide coverage for criminal legal defence fees, even if the claim relates to professional work.

Examples of How D&O Insurance and E&O Insurance Protect Small Businesses

Let’s put this into context with a couple of examples of how each type of insurance can protect you. First, consider this D&O coverage example:

A CEO of a publicly traded company is struggling to keep afloat in a challenging economic environment. Shortly after reporting the company’s latest quarterly financial results to shareholders and lenders, which showed that your firm is managing to weather the challenges it faces and is reporting moderate growth, the company files for bankruptcy protection. 

Shareholders and lenders are outraged and launch a lawsuit against the company and its board of directors for misrepresentation and making a misleading statement. In this scenario, a directors and officers (D&O) insurance policy could help cover legal defence costs and protect the personal assets of board members.

Now, let’s consider the following example of how E&O insurance can protect you:

An operations consultant is hired to advise a company on how to launch a new product in the market. The company is a small business that relies on this new product launch to keep the business solvent.

Based on the consultant’s advice, the business owner makes a series of changes to the launch plan. The launch fails, and the business goes bankrupt. The business owner alleges the consultant is at fault for their business going bankrupt. 

In this case, an errors and omissions (E&O) insurance policy would cover the consultant’s legal defence and any potential settlement.

Get the Customized, Low-Cost Business Insurance You Need Now

Whether it’s D&O insurance or E&O insurance your business requires, Zensurance can get the policy you need quickly and hassle-free.

More than 350,000 Canadian small business owners and independent professionals across hundreds of industries trust Zensurance to help them protect their finances and assets.

Complete our online application to receive a free quote.  

Our knowledgeable team of brokers will shop the market for you to find the low-cost policy you need, customize it to suit your business or profession, and issue policy documents and a certificate of insurance in 48 hours or less.

– Updated August 11, 2025.