ERRORS & OMISSIONS: What Insurance Agents Need to Know About Errors & Omissions Insurance


FROM A HOMEOWNER DEALING WITH PROPERTY damage to a business owner facing a liability lawsuit, insurance agents and agencies are in business to protect their customers from risk. But in much the same way that airlines urge passengers to secure their own oxygen mask before helping a fellow traveler with theirs, insurance agents should address their own risks before engaging with customers.

Vital coverage for insurance professionals

One of the most crucial types of business coverage for insurance professionals is what is called errors and omissions insurance, or E&O. Also referred to as professional liability insurance, it is designed to protect people who make their living providing the type of professional advice that agents give customers every day. It can cover damages and legal costs if a customer or someone else sues an agent or agency.

“Insurance agents are particularly vulnerable to lawsuits since it’s difficult to define what’s ‘right’ and ‘wrong’ in many scenarios involving the advice they give to customers,” says Peter Shelley, president at biBERK, part of Warren Buffett’s Berkshire Hathaway Insurance Group.

“For example, a customer might feel that the limit they were advised to have on a policy was inadequate, leaving them with a large out-of-pocket expense, even though any experienced agent would recommend the same amount,” he continues. “But either way, if they sue, the agent must defend their actions, and that can be costly.”

What’s covered by E&O insurance?

Insurance professionals are required to adhere to certain standards and best practices for the insurance industry. Failing to do so opens an agent up to a professional liability lawsuit.

E&O insurance covers three general types of errors and omissions claims:

Unfulfilled duties. This is a situation where the agent is expected to take certain actions but fails to do so. For instance, they are supposed to file forms related to a claim by a specific deadline and do not.

Negligence. An agent is negligent if they fail to use proper care when performing a task. For example, they do not advise a client about important coverage and that individual or business is left with a wide gap in protection.

Errors. Here, an agent makes a mistake like providing a customer with incorrect information about a policy.

E&O insurance can cover the cost of damages, subject to policy limits, including punitive damages if allowed by state law. This is important, as punitive damages are assessed on top of other damages, and can be very high. E&O also covers legal defense costs, even if the claim is eventually determined to be meritless, and many insurers will provide an attorney to represent the policyholder.

Professional liability tips for insurance agents

In advising clients about getting insurance coverage, agents stress that time is of the essence. After an incident has occurred, it is too late. That is sound advice for agents and agencies as well.

“The reality is that an insurance agent never knows when an unhappy customer is going to file a lawsuit against them. It may not happen ever or they may be contacted by a lawyer tomorrow,” adds Shelley. “Every day that an agent puts off obtaining E&O insurance is another roll of the dice, as is failing to confirm periodically that they have adequate coverage.”

Before making a purchase, however, it is important that agents do their homework. While many insurance companies offer E&O insurance, not all policies are the same. Insurance professionals must review a policy from start to finish before signing.

In particular, it is very important to understand the policy exclusions. Nobody wants to find out from their insurer that the company will not cover a particular type of lawsuit that has been filed because of an exclusion that is clearly spelled out in the policy they did not read.

Beyond insurance, a great way to prevent the financial burden of a professional liability lawsuit is to reduce the risk of an error occurring. Insurance agents and agencies can do this by:

Always using written contracts with clients: 

• Get a signed waiver when a client declines a recommended coverage.
• Have clearly defined, well-docu-mented processes for how they run their business

• Provide training and refresher courses as needed on their business operations, paying particular attention to processes where liability is the highest

By ensuring that they do their work carefully and consistently, and that they have proper errors and omissions insurance in place, insurance agents can be confident they have minimized the professional liability risk to themselves and their company.
Beyond E&O insurance: other important small business coverage
The risk of professional liability claims is a big one for insurance agents, but it is not the only one. Agents and agencies should consider policies for other exposures. These include:
~Workers’ compensation insurance, which is often mandatory for businesses with employees and provides coverage for on-the-job injuries or illnesses
~General liability insurance to provide protection in the event of incidents like client slip-and-fall accidents in the office
~A business owners policy (or BOP), which combines general liability with company property coverage
~Commercial auto insurance to cover business-owned vehicles protection, up to policy limits, for claims that exceed the limits of another liability policy
~Cyber insurance for security breaches that result in the loss of sensitive information. With everything they know about the consequences of not being properly insured, insurance agents and agencies should be the most proactive businesses when it comes to being fully protected from liability and loss.
Rakesh Gupta, chief operating officer of biBERK, Feb. 16, 2017, at the World-Herald newsroom.

is chief operating officer at biBERK, part of Warren Buffett’s Berkshire Hathaway company. biBERK specializes in commercial insurance for small businesses. In his role, Gupta focuses on simplifying the insurance buying experience using technology and process innovations that make it easier for small business owners to get the coverage they need. For more info go to