Errors and Omissions Claims: The Ultimate Guide to Dealing With E&O Issues for Agents
According to Independent Insurance Agents of Texas (IIAT), studies show Errors and Omissions (E&O) claims against insurance agents and brokers are increasing from one in three to one in twelve. Surely, E&O insurance for insurance agents can be your shield against hefty fines, but the best approach is to limit the possibility of E&O.
However, before you look at the solutions, you should understand the impact of and your vulnerability to E&O claims.
In this blog
Why Should You Worry About Errors and Omissions?
Let’s look at some quick facts related to E&O claims. These facts are pulled from various articles:
- According to a report by Insurance Journal, the severity of E&O claims involving commercial lines is much higher than the personal line. However, E&O claims under personal lines can easily make you liable for a fine above $1 million.
- Additionally, agents selling commercial insurance are more prone to E&O claims. Nevertheless, personal lines involve a large number of E&O claims as well.
- In another report by Insurance Journal the agents and agencies selling auto or homeowner’s insurance are prone to E&O claims. 25 to 30 percent of total E&O claims pertain to these product lines.
- Similarly, the average settlement dollars for E&O claims arising from homeowners and personal auto insurance clients are around $30,000 and $25,000, respectively.
Common Errors and Omissions Claims
The first step in solving a problem is identifying the problem. This section highlights the common E&O claims.
Your clients love the idea of saving on insurance costs. But, when disaster strikes, they do not deter from holding you liable for the limited coverage. Consequence? A lawsuit against you. For instance, according to a news extract from Insurance Journal, many companies have filed lawsuits against insurance agents for no-compensation of business interruption caused by COVID-19.
Errors in Policy
Inadequate understanding of clients’ needs or negligence can lead to an erroneous insurance contract. The error may be under-valued coverage, failure to obtain requested insurance coverage, or the inability to get insurance as promised.
According to a 2018 Case Law Update on a Plusweb report called “Insurance Agent/Broker Errors and Omissions Claims”, stated that, you may be liable for breach of an oral agreement in either of these cases. Under the Common Law Duty, you may also have to procure requested insurance for the client. And, failure to procure, may subject you to breach of contract.
Failure in maintaining policy changes
Insurance agents must communicate the needs of insureds to the carriers. Insureds may request for changes at the time of renewals or in-between. For instance, clients may inform you about the coverage they want to add. However, the insured may forget to request the same to the carrier. In this case, the agent will be at fault for not maintaining the requested changes.
Explanations of policy terms
The intricacies of insurance policies can be difficult for your clients to comprehend. Due to such complexities and specialized knowledge of insurance agents, you may be subject to fiduciary duty towards your clients.
However, in the same law update it was reported that your responsibility towards your clients differs state-wise: In New Jersey, the relationship between an agent and a client is expected to be fiduciary while Mississippi holds to the contrary. On the other hand, Ohio requires the plaintiff to prove the existence of a special trust relationship to demonstrate a fiduciary relationship with the agent.
Final Words: Don’t fear E&O Claims, but be Prepared!
Being a professional or an expert increases the level of legal liability. Your role as an insurance agent comes with various legal responsibilities towards your clients and carriers you associate with.
While the errors and omissions claims can be financially taxing, understanding the common ones, and following the simple steps like asking questions to clients, explaining them the policy clauses, etc., can tremendously avoid such claims.
However, even when you are extra-careful, the possibility of E&O claims cannot be entirely ruled out. If such happens, there is always E&O insurance for insurance agents to cover your potential losses.
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