E&O Insurance for Insurance Agents: Liability, Programs, Costs & More
June 14, 2021
We live in challenging times and a litigious society where people quickly use lawsuits to resolve their complaints. Unfortunately, those dynamics put professionals who offer advice increasingly at risk from client legal actions.
Accusations of malpractice or faulty work done for a client by their insurance agent are a potentially serious threat to the agent’s livelihood. Insurance E&O programs can help cover an agent’s legal defense and settlement costs resulting from a client’s charges against them.
What is E&O Insurance & Why Insurance Agents Need it?
Errors and omissions (E&O) insurance is a form of professional liability for insurance agents. It protects them against losses related to lawsuits charging the agent’s work was mistaken, late, or never produced.
A 2018 case law study cited in a presentation to the Professional Liability Underwriting Society indicates a rising trend in insurance agent E&O claims. Also, Insurance Journal magazineanticipates 2021 will see a significant increase in lawsuits targeting agents for errors and omissions claims.
History shows insurance E&O claims are a trailing indicator after catastrophic events such as a hurricane or a disruptive pandemic, as we experienced in 2020. Such claims against agents usually come after other initiatives are exhausted or are well underway.
Professional liability is a core coverage for insurance agents and brokers because missteps, mistakes, and miscalculations can happen to the most diligent agent. Sometimes a seemingly minor error can lead to a client suffering an uninsured or underinsured loss. And there are many other ways agents can become the target of attorneys seeking financial remedy for actual or perceived problems for an insured’s claims.
Who Needs Insurance E&O Insurance?
Any independent agent or insurance professional who offers financial advice. settles claims, or suggests and provides insurance coverages needs to protect themselves and their business from being held personally responsible in lawsuits brought by dissatisfied customers.
E&O insurance for life insurance agents, P/C agents, claims agents, and financial consultants is a must-have coverage. That’s because these advisers can’t rely on the quality and excellence of their service to protect them. It’s a clear case for practicing insurance agent risk management.
For example, an agent may perform their service to perfection, notifying a client of known risks and potential pitfalls and losses should an investment fail to meet projections. Their client okays a transaction by signing to prove they understand the risks involved. And they still decide their agent is somehow at fault and sues them.
The agent might find vindication by winning a court battle or a favorable decision in arbitration and still be bankrupt by legal defense costs without adequate E&O insurance coverage.
What Does E&O Insurance Cover?
An E&O policy essentially is insurance agent liability insurance. Agents have exposures for the advice they give, the types of coverages they sell or don’t sell, and the deductible, limitation, and exclusion features of policies issued to clients. Yet, as previously mentioned, agents can perform and deliver flawlessly and still end up in a costly, protracted court case defending claims against them. The primary types of claims against agents that insurance agent liability coverage protects are listed below.
An accusation of negligence, errors, or an unfulfilled promise related to insurance services is often the first step toward an insured bringing legal action against their agent. In addition, an insured may charge professional negligence if they believe an agent was neglectful in handling some facet of their policy or claims. Examples are:
● Agent negligence caused a loss due to insufficient policy limits
● Agent provided advice that did not meet minimum industry standards
Mistakes in life and business are everyday experiences. For example, mistakes happen when vital information is accidentally missed, or a typo or an incorrect data entry is made. Other possible flashpoints for lawsuits are miscommunication or a misunderstanding where clients believe they had coverage that is not an actual part of their insurance program.
When such mistakes lead to losses, and ultimately legal proceedings, the insurance agents or other professionals involved in a client’s business or the settling of their claims need the protection of an insurance E&O program. An insurance agent’s E&O policy will cover legal fees and settlement costs up to the policy limits regardless of the merits of a legal case.
Failure to Deliver Promised Services
Insurance agents are connectors between their clients and the insurance carriers providing coverage for their clients. An example of agent E&O claims examples is failure to share policy changes that cause the insurance company to deny a claim.
Clients have a reasonable expectation for their agents to perform their duties, including keeping up-to-date, correct client information, and adequately sharing timely data with the insurance company. Conversely, when policy changes come from the carrier, it is incumbent on the agent to inform their clients of the changes. Withholding information about a shift in the financial condition of a client’s insurance company is another example of potential exposure that is protected by an insurance agent’s E&O program.
Types of Insurance Agents it Covers
Insurance E&O Programs cover a range of insurance professionals. The Program Business Market Directory provides listings of top insurance E&O programs, including RSG National Specialty Programs. Target classes for RSG’s professional liability program include:
● Property & Casualty
● Life / Accident & Health Products
● Fixed Annuities
● Retail independent agents and brokers
● Wholesale brokers
● MGAs / MGUs / TPAs
● Program Administrators
● Hybrid facilities
E&O Insurance Costs (and what factors affect the price)
The typical range for insurance agent E&O insurance coverage starts around $500 and runs to $1,000 annually. Factors that affect the actual include the location of the business, business type, and claims history. As the saying goes, “Your mileage may vary.”
Best Insurance Agent E&O Insurance Program
When it comes to finding the best E&O liability insurance program for agents, the factors usually carrying the most weight in the decision include price, customer service, carrier and brokerage reputation, responsiveness, and convenience, including digital experience. A standard errors and omissions policy usually offers $1,000,000 in coverage per claim. Higher limits for more extensive operations are available.
A great place to start your research is the Program Business Market Directory. There you will find listings to help you narrow your search. A top-notch choice is the RSG as mentioned above National Specialty Programs. Its Agents E&O Program offers access to a broad definition of professional services, a soft hammer clause, and multiple deductible options, starting as low as $2,500. In addition, it provides access to policy options on both a standard and surplus lines basis and can customize coverage to specific needs.
RSG offers these program highlights:
● Available nationwide
● Broad definition of professional services
● Tailored carrier insolvency coverage
● Soft hammer clause
● Covers punitive damages where allowed by law
● Independent contractors included in coverage
● Multiple limit options up to $5,000,000 / $5,000,000
● Multiple deductible options available starting at $2,500
● Deductible credit for claims resolved via mediation
Installment payment plans available – no fees.
RSG’s Professional Liability Coverage includes:
● Broad Carrier Insolvency Coverage
● Soft Hammer Clause
● Disciplinary Action Coverage
● Subpoena Coverage
● Loss of earnings
● Exclusive proprietary enhancement endorsement included providing reimbursement for:
● Canceled Conferences
● Temporary Meeting Space
● Emergency Web Hosting
● Workplace Violence Consulting
● Cyber First-Party and Third-Party Coverages included