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Research & Analysis

Clinical Research Services and E&O: What You Need to Know

June 27th, 2014 | 4 min. read

By Jonathan Waterman

Updated October 2, 2023

This is Part 2 of a 3-Part series of posts that explore Clinical Research Liability.

Part 1: 3 Common Insurance Issues for Healthcare Providers Engaged In Clinical Research Services

Part 3: Clinical Research Organizations (CRO): Important Liability Insurance Issues

In Part 1 of this CRO series, we noted that MPL was one of two distinct types of liability that must be carefully analyzed when covering a contracted physician, researcher, or CRO. In this article, we’ll take a closer look at the second area of liability: “Business E&O”.

What is Business E&O?

Business Errors and Omissions (E&O) is the risk and liability associated with the potential delivery of faulty work to the contracting entity (usually called the ‘sponsor’). This type of risk is often referred to in insurance-speak as “other financial loss” because this describes the kind of harm that could be inflicted on the sponsor by the error or omission.

In short, Business E&O liability is the risk of a business making a mistake (an error or omission) in the delivery or fulfillment of its service to its client, which is often another business. Every business essentially has some form of E&O risk. The moniker ‘Business E&O’ helps to make clearer in clinical research work the separation between the two similar areas of liability: MPL and E&O.

E&O risk is often overlooked or misunderstood when a physician, researcher, or Clinical Research Organization (CRO) engages a sponsor company by contract. To understand why this happens, it’s helpful to think of a story where the key points of risk and confusion can be easily identified.

Understanding Business E&O, an Example:

Consider the following scenario:

A pharmaceutical company has created a new drug. That company is researching their newly developed drug in accordance with FDA guidelines and protocols. So, the company acts as the “sponsor” of a clinical trial that will study the drug’s efficacy through several phases of testing. Their clinical trial process then enters Phase III, which requires ‘testing’ the new drug on a wider group of people. The sponsor enters directly into a contract with an individual physician who agrees to act as the Principal Investigator for that phase of the trial. The physician essentially runs and manages the trial and oversees the administration of the drug and its reactions to a variety of participants.

Contract Indemnification Clause

The physician enters into a direct contract with the sponsor and agrees to provide certain services. This contract should include indemnification wording whereby the sponsor agrees to extend their own products liability insurance policy to also cover the physician. However, this benefit only applies to claims brought against the physician by a trial participant (patient) when the cause of injury derives strictly from an adverse reaction to the drug.

TIP: A sponsor’s contract does NOT indemnify all areas of MPL risk for the healthcare provider. For more on that see from part 1.

Let’s assume the physician delivers fully on the services promised in the contract. However, let’s now also assume that this clinical trial ultimately fails to prove sufficient efficacy of the drug. As a result, the drug fails to receive approval by the FDA for general market sale. The sponsor has now lost a great deal of money in having developed the drug to this point and is unable to bring it to market because of a failed trial. The sponsor may have to spend even more money to re-develop and re-test the drug, or else abandon it altogether.

Claim Causation = Other Financial Loss

In our scenario, the sponsor has lost a lot of money on a failed trial and potentially a failed drug. However, the sponsor could attempt to recoup at least some of their financial loss by suing their contractors for wrongful acts leading to financial loss. This simply means that the sponsor could allege that one or more of their contractors hired to administer their trial became causing factors in the trial’s failure.

In the insurance world, we identify these types of claims as “Other Financial Loss” type claims because the claimant is a business claiming to have been harmed by a financial loss rather than by property damage or bodily injury. This makes clear that the cause of the insurance claim is a financial business loss rather than a personal injury loss.

Errors & Omissions vs. Breach of Contract

The Business E&O risk for the physician, research, or CRO is primarily seen as the risk of a sponsor suing for the faulty delivery of contracted services. In our scenario, the physician performed the services agreed to by contract so there was no failure to deliver, hence no ‘breach of contract’. However, if the sponsor can prove that the services rendered by the physician contained faulty or erroneous work, then the ‘error’ or ‘omission’ of the physician now becomes a risk for the physician.


Obviously, well-meaning physicians, researchers, and CROs can have a great deal more E&O risk than anticipated. The good news is that a separate Clinical Research Liability (CRL) insurance policy is available to adequately address both the MPL and E&O exposures associated with clinical research services. This unique type of insurance policy can cover both components for any clinical trial exposure incurred in a healthcare provider’s contract.

Jonathan Waterman

Jonathan, the Co-Founder and Chief Operating Officer of Ethos since its inception in 2004, has had a distinguished insurance career dating back to 1992. Beginning as an underwriter specializing in medical liability insurance for PHICO Group, he progressed to roles with Frontier Insurance Group and National Specialty Underwriters, Inc., before co-founding Ethos in 2004. Jonathan's background as a med-mal underwriter and in the wholesale market uniquely positions him to drive operational excellence at Ethos, utilizing his expertise in identifying data patterns. He has contributed to industry dialogue through his blog articles and participation as a panelist at events such as PLUS. Beyond his professional pursuits, Jonathan finds joy in family, a wide range of hobbies including music and sports.