The Best Tips About E&O Insurance for Insurance Agents
TLTR: Learn the basics of E&O insurance for insurance agents, the coverages, its costs, and essentials tips to help you minimize errors.
One of the worst things an insurance agent can experience is to receive a lawsuit from one of their clients. This happens when you make mistakes and it proves to be disadvantageous for your client. That can result in them filing an E&O claim against you. That’s why it pays off for agents in this industry, who have been sued by various claimants for their actions to have errors and omissions insurance.
If you deal with customers often enough, then that might mean shielding yourself against lawsuits if anything goes wrong. E&O insurance coverage is that something you need for your own financial security.
In this blog
- What is E&O Insurance for Insurance Agents?
- Which Insurance Professionals Need E&O Insurance?
- Is E&O Insurance Necessary for Insurance Agents?
- What Does E&O Insurance for Agents Cover?
- What Does E&O Insurance for Insurance Agents Not Cover?
- Tips To Limit Professional Error and Omissions
- In Conclusion,
- Frequently Asked Questions
What is E&O Insurance for Insurance Agents?
E&O insurance, also known as errors and omissions insurance is a type of professional liability insurance. It acts as a financial backup for individuals as well as businesses from lawsuits claiming a mistake in any professional services. In addition to error in services, the policy also saves you from claims associated with misinformation and negligence.
In general, E&O insurance is applicable for various businesses and individuals that provide their services. Some businesses that require E&O insurance are:
- Insurance Agents
- Real Estate Agents
- Technology Firms
Note: Sometimes business partners might require E&O coverage as per contract in relevance to the business.
Which Insurance Professionals Need E&O Insurance?
E&O insurance is a good choice for any insurance professional company with employees. It could benefit any type of business or individual offering one or more services to their clients. Especially if they act as intermediaries between a client and company. The insurance professionals that usually need E&O insurance are:
- P&C Agents
- Life & Health Insurance Agents
- Claims Adjusters
Note: You should consider an E&O insurance policy if you or your business frequently work with clients, customers, and other insurance professionals.
Is E&O Insurance Necessary for Insurance Agents?
Without a reliable E&O insurance policy agents can face heavy liability claims. The cost of these claims can be high enough to even close down an agency.
When disaster strikes, clients can find any action from your end to be unfair which could lead to a lawsuit. If you’re sued by your clients on the grounds of negligence or lack of service on your part, it can be a heavy burden on your finances. According to the Insurance Journal, many companies have filed lawsuits against insurance agents for no-compensation for the interruption of daily business caused by COVID-19.
While having an error and omissions policy can be a safety net for you as an insurance agent, it’s even better to consider limiting the possibility of potential E&O. We will discuss how to do that in the sections to follow. For now, let’s see what this insurance covers.
What Does E&O Insurance for Agents Cover?
Primarily, the coverages for E&O includes legal costs and settlements from any lawsuits related to professional errors and negligence. Let’s look at an example:
A company hires an independent insurance agent for advice on which polices to get for their business. The agent advises accordingly and presents various options. But they don’t take into account what the business exactly needs and sells them a few additional policies that isn’t relevant to them. This causes the business to have less amount of coverage on what’s actually important for them.
The company then faces a crisis which puts them at the brink of bankruptcy and doesn’t have enough coverage. Then they find out that their insurance policy wasn’t ideal and they were paying for insurance they didn’t even need. The company then proceeds to sue the independent agent who sold them the coverage policy.
If the agent has E&O insurance, this claim can trigger the coverage and pay for the damages suffered by the client.
So, with that example in mind, E&O insurance provides coverage against lawsuits arising from in the following situations:
- Administrative mistakes
- Not upholding contractual obligations
- Unnecessary delays in service
- Lack of provision of information regarding services
- Failure of service or agreed upon deliverables
Basically, if you, as an insurance agent fail to assess the client’s needs, you will end up not upholding your end when it comes to providing your clients with the service they need. As per a 2018 Case Law Update on a Plusweb report, you may be liable for breach of an oral agreement if you provide your client with an under-valued coverage, or are unable to provide them with the coverage that they need, and aren’t able to provide them the promised insurance.
What Does E&O Insurance for Insurance Agents Not Cover?
E&O insurance generally covers financial losses. Thus, it doesn’t provide coverage for any personal injuries to you or your property. Some of the claims that E&O insurance doesn’t cover are:
If you run an agency then E&O coverage will not cover for any injuries to your employees while on the job. Workers compensation insurance is a viable alternative that will cover your employee’s medical expenses and lost income while they are injured during their job.
Damage to Business Property
E&O insurance isn’t viable if your business suffers damage or loss from external factors such as natural disasters or vandalism. A business owners policy (BOP) or a commercial property insurance will help secure your business and cover the repair or replacement costs of property damage from covered perils. These perils can be floods, lightning, fire, or vandalism.
Customer Injury & Property Damage
When you’re working with a client, chances are they could get injured within your business premises. Even if it’s your fault or ‘error’ that caused injury to them, an error and omissions insurance would not cover you. In such situations, general liability insurance is applicable and it covers a client’s injury or property damage while you are working with them.
Accidents Involving Business Vehicle
There are times when you might get into an accident while commuting for work purposes. Whether the driving error is yours or another driver’s, E&O insurance isn’t helpful here. Opting for a commercial auto insurance is your best bet. It helps cover liability expenses when your business vehicle is involved in an accident. If you rent vehicle or if you utilize your employee’s vehicle for business purposes, you need to consider non-owner car insurance.
Tips To Limit Professional Error and Omissions
Even if E&O insurance provides you with sufficient backup for professional lawsuits, there are ways to avoid them. Risk management is an important duty for any agent or insurance agency to excel in their business. Despite having sufficient coverage in place, you can ensure that future E&O claims are of minimal to no effect to you. Here are some tips you can take as an insurance agent.
Know Your Field of Expertise
One of the best ways to limit your professional liability risk is by staying within what your expertise. Don’t be tempted into taking on insurance related opportunities outside this area even if it’s for a friend or client who has other service needs fulfilled by others in their organization. This could land them with an unhappy customer and hurt business across the board!
To avoid any potential problems like these happening as they happen, or planned, make sure you and all your fellow members know exactly where things should stop when dealing professionally. Don’t forget that not knowing such details will not only cause resentment, but also jeopardize future employment opportunities.
Keep a Good Record of Information
Your records are your best defense against lawsuits. After your meeting with a client, send them an email that highlights vital points from the discussion to keep things simple for everyone involved in correspondence. Make sure that you have electronic copies of all relevant documents including forms approved by both parties.
It’s also a good idea to back up those digital files more than once so no one has access to them. Furthermore, you can even send a copy to the client so that they are also well informed.
Be Transparent About Your Services
Most clients will want to have an agreement in place before starting the work. A written document or other formal means explaining what services you’ll provide, and which ones you won’t, can help prevent any misunderstandings that might arise when your service nears completion. Review insurance documents with your client so each party has clear expectations about their role during these initial stages.
Maintaining professionalism throughout all interactions helps ensure success from beginning. Therefore, it’s important to disclose any defects in insurance coverage with official forms. So long as they are not intentional misrepresentations, E&O Insurance will cover the claim – but only if you’re careful about what gets reported and when.
Always Give the Right Information
When clients are looking to buy or renew their insurance, they want someone who is knowledgeable and helpful. Agents that provide them with information in an easy-to-understand way will more likely get a recommendation. Also, clients will establish an image of trust for the future because of how at ease they felt when working together. On the other hand, providing wrong advice could result in legal consequences. So, make sure all options on table were considered and presented while being mindful of their best interests.
While giving advice its always best to stick to what you already know about. When it comes to your expertise, stay on the side of caution. As tempting as it may be for you not to answer a question because they don’t have anything in writing, or if there were any mistakes with their data collection methods, stay professional! If you’re unsure about something during a meeting just double-check before giving them an answer. This way you can avoid anything bad happening later down the line.
Work With Professionals
This is a simple thought. Don’t work with people who aren’t experts in their field. Especially when you’re working with other agencies or are gathering information relevant to the policy you are selling. Try to limit your business interactions with people whose expertise can’t be proven legally in case of a future liability claim. For example, real estate agents and firm owners are just one group of professionals that interact during the process for selling properties; appraisers, inspectors, lawyers, contractors, and more come into play. So, it’s important they know what they’re doing as well.
Without proper E&O insurance, it’s easy for you and your team members to get sued. But if they have a license or professional certification that isn’t up-to date can mean less money in the bank because every lawyer will want their share of the cake! Make sure your staff has current licenses before any legal disputes arise with clients if and when they claim your incompetence regarding your job.
Hire A Good Lawyer
Avoiding a financial disaster is as easy as consulting an experienced lawyer. Lawyers have seen your peers make minor mistakes that led them into big problems. The ones who have handled similar cases or so, can advise you with clear ways of securing records against potential future lawsuits. In addition to that, your whole staff needs to know about the importance of risk management policies for smart investments in the insurance industry!
Also, the more you talk to your attorney, the better they will be at representing you in a professional liability case. Remember that any communication between attorneys and clients is privileged. This means they have an ethical obligation to not reveal confidential information unless it’s relevant for defense purposes. So don’t hold back on details even if they think those things might not help with their work!
Working as a professional insurance agent can be difficult. Especially if clients are unsatisfied with your service and end up suing you. With liability comes the need for expertise and skill, which means there’s always an increased chance that things will go wrong when you’re not careful enough with your skillset. The risk is even higher if you’re not knowledgeable about certain legal matters relevant to E&O insurance.
Even if you’re extra careful, the possibility of errors and mistakes are always there in the insurance industry. And that’s where you can rely on an E&O insurance as an insurance agent.
We hope this insurance blog answered your questions regarding E&O insurance. Leave a comment below and share your thoughts.
Frequently Asked Questions
What Is an Error and Omission Clause?
Error and omissions clause is a provision that states if an insurer fails to provide or has oversight in the services that they provide, the client or receiver of said services have or will get insurance protecting them against any liability. This coverage will last until the term of the contract or until a specified date to cover any loss or damages due to services unrendered.
Basically, an E&O clause is a contractual obligation to safeguard and maintain professional errors committed by a service provider. It is always appropriate to add an errors and omissions clause for any dealings with other businesses or clients.
Are E&O Insurance and Professional Liability Insurance Different?
Professional liability insurance protects you and your business against lawsuits originating from a mistake in your services. And E&O insurance is another name for professional liability policy. These terms are interchangeable and generally there is not difference between them in terms of the coverage they provide.
Professional liability insurance is generally suitable for businesses and professionals such as:
- Business consultants
- Insurance agents
- Medical providers
- General contractors
- Financial services
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