Errors and Omissions Claims: The Ultimate Guide to Dealing With E&O Issues for AgentsPhoto from unsplash

Originally Posted On: Errors and Omissions Claims: What Should an Insurance Agent Know? (


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.

e&o insurance for insurance agents cost

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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.


Supposed under-coverage  

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 the health crisis.

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 “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.


5 Ways to Avoid Errors and Omissions Claims

As pointed earlier, the average size of E&O claims can easily cross $1,000,000. The frequency and magnitude of E&O claims stresses the need to avoid such claims.

Below are some simple yet effective tips to help you avoid E&Os and their repercussions:

Clarity of Clients’ Needs Always Reduces E&O Claims

Try to understand your clients’ needs. Proactively collect relevant information by asking questions regarding your clients’ lifestyle, and the property to be insured. For instance, ask homeowners insurance shopper about property details; reliance on property-information recorded in the web portals can make you susceptible to errors in recommending ideal insurance coverage.

A good practice is to analyze the collected information and check if any further data is missing. It reduces the risks of omitting coverages or making errors during submissions. Submission with complete information is one of the best ways to get competitive quotes from the carrier leading to quality procurement.

Risk Analysis is a Must to Avoid E&O Claims

Merely collecting information and procuring insurance policy does not eliminate the possibilities of E&O claims. Leverage your expertise to actively evaluate various risks involved. For instance, you should advise your client about flood-related risks if the insurable property is in a high flood risk zone.

Talk to your clients about endorsements, conditions, and exclusions. While the decision to purchase or add coverages depends on your client, you are responsible for providing them complete information. Also, ensure that the additional coverages are within the purview of products offered by carriers.


Diligent Procurement: It’s not Just you that can be slapped with an E&O lawsuit

Agents are the representative of insurers and expert advisors of clients from need analysis through risk assessment to policy purchase. Because of your specialized knowledge, your clients trust that you will help them get the best possible solution for their insurance needs.

Hence, to deliver reliable service and build your credibility, proactively work to obtain competitive quotes from reliable insurance carriers. While procuring, remember that your clients’ needs matter just as much as the reliability of carriers you recommend to your clients.

Meticulous Policy Review Must be done Periodically

Always review the policy issued by the carriers and check the details meticulously. No matter how careful you are, you may make errors during the submission. Remember that even a minute error can lead to a huge loss for the client and, eventually, a lawsuit against you.

The best way to limit E&O claims is by reviewing the policy. After you receive a copy of the insurance policy from the carrier, go through the contract, and check the accuracy of details. In case of any inconsistency, immediately contact the carriers and request for amendment.

Explanations of Policy Terms is Necessary to Avoid Confusion

As a bridge between an insured and insurer, you should fill the knowledge gaps of the insureds and establish symmetrical information. Walk your clients through the policy, explaining technical terms to ensure that they understand all the contract clauses.

If a client finds ambiguity in policy terms, clarify. Ambiguity and misunderstanding are significant factors driving E&O claims. Hence, through clear explanations and proper understanding of the policy by the client, the chance of E&O becomes slim.

These quick tips, although simple while reading, can avoid errors and omissions. However, prepare yourself for probable E&O claim against you through E&O insurance.

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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