Here's something most accountants don't think about until it's too late: one missed tax deadline can cost you everything you've built. A client files their return late because you got swamped during tax season. They owe penalties and interest. Now they're calling a lawyer, and suddenly you're facing a lawsuit that could drain your savings and shut down your practice.
That's where Errors and Omissions insurance comes in. Also called professional liability insurance, E&O coverage protects you when clients claim your work caused them financial harm. Whether you're a solo CPA preparing tax returns or running a firm that handles audits and advisory services, E&O insurance is your safety net against the lawsuits that come with the territory.
Why Accountants Get Sued (More Often Than You'd Think)
The accounting profession has grown to over 1.4 million professionals, and with that growth comes increased litigation risk. Even excellent accountants make mistakes. You're juggling dozens of clients, constantly changing tax codes, and tight deadlines. One small error can snowball into a major financial problem for your client—and a lawsuit for you.
The most common claims against accountants include tax filing errors, missed deductions that cost clients money, bookkeeping mistakes that throw off financial statements, audit oversights that fail to catch fraud or misstatements, and advice that leads to financial losses. In 2024, one client sued their accountant for over $100,000 in losses after tax return errors resulted in overpayment. Another case involved an accountant who failed to discover a client's fraud during a review—even though they weren't engaged to perform a full audit.
Here's what really keeps accountants up at night: you can be held liable even when you follow procedures correctly. Third-party claims from investors and creditors who suffered losses are becoming more common. Class action lawsuits and massive jury verdicts are on the rise. The legal landscape isn't getting easier—it's getting more complicated.
What E&O Insurance Actually Covers
E&O insurance protects you when clients claim your professional services were inadequate, negligent, or late. That includes the big-ticket items that can bankrupt a practice: legal defense costs, settlements and judgments, court costs and filing fees, and expert witness fees.
Let's talk about defense costs, because this surprises most accountants. Even if a claim against you is completely baseless, you still need to defend yourself in court. Attorney fees alone average between $3,000 and $150,000. That's before any settlement or judgment. Your E&O policy covers these costs, which means you're not draining your business account or personal savings to fight a frivolous lawsuit.
Most policies cover claims arising from negligence and errors in your professional work, tax preparation mistakes and missed deadlines, incorrect financial reporting or advice, failure to discover fraud during reviews or audits, and breach of professional duty. The coverage typically extends to both your work and the work of your employees, which is crucial if you're running a firm.
How Much Does E&O Insurance Cost?
Here's the good news: E&O insurance is more affordable than you might think. In 2024, professional liability insurance for accountants costs an average of $45 per month, or about $537 annually. Most accounting professionals pay between $500 and $2,000 per year for robust coverage.
A helpful rule of thumb is $500 to $1,000 per employee annually. Solo practitioners typically pay $500 to $2,000 per year, small firms with up to three staff pay $1,000 to $2,700 annually, and mid-sized practices with 4 to 30 professionals budget $2,500 to $10,000 or more.
What affects your premium? Your firm size and annual revenue matter most. Geographic location plays a role—accountants in high-litigation states pay more. Your claims history impacts pricing significantly. The coverage limits you choose determine your cost. And the types of services you offer factor in, with audit and advisory work typically costing more to insure than basic tax preparation.
Choosing the Right Coverage Limits
Coverage limits range from $100,000 to $10,000,000, but most small firms start with $1 million per claim and $3 million aggregate. That's generally enough to cover legal fees and damages for typical claims. The average policy includes $1 million per occurrence, $1 million aggregate, and a $1,000 deductible.
Think about your risk profile when choosing limits. If you handle high-net-worth clients or complex tax situations, you might want higher limits. Firms that perform audits face greater exposure than those focused on bookkeeping. And if you have clients in multiple states or work with publicly traded companies, you'll want more robust coverage.
Getting Started with E&O Insurance
Shopping for E&O insurance doesn't have to be complicated. Start by assessing your services and client base. Calculate your annual revenue and number of employees. Review any claims history you might have. Then compare quotes from multiple insurers to find the best combination of coverage and price.
Many accountants work with insurance brokers who specialize in professional liability for CPAs. These brokers understand the unique risks you face and can help you find coverage that fits your practice. They can also explain policy details like whether you're getting occurrence-based or claims-made coverage, what your deductible options are, and whether you need additional endorsements for specific services.
Bottom line: E&O insurance isn't just a smart business decision—it's essential protection for your livelihood. One lawsuit can derail years of hard work and destroy your reputation. For less than $2,000 a year, you get peace of mind knowing that if a client sues you over a tax error or missed deadline, you won't lose everything defending yourself. That's not just good insurance—it's good business.
