Errors and Omissions– 101
by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department
Even though Agents’ Errors and Omissions (E&O) is by no means a new coverage, to assume that all agency owners and experienced staff are familiar with the concept of E&O may be a little bit of a stretch. It is probably fair to say that new agency owners and staff are not as educated on this important coverage, nor do they understand how critical E&O is.
Due to media attention, most people know that individuals in the medical profession have malpractice insurance. This insurance provides protection for claims made against them for allegations of wrongdoing. Other professionals such as accountants, lawyers and architects also carry this same type of protection with the coverage form tailored to the type of services they perform. For insurance agents, there is coverage available to protect agencies and their staff for claims brought against them. It is called Agents’ Errors and Omissions.
A
typical scenario of a claim made against an agency would involve failure
to place a certain type of coverage that the
client thought they had
requested. When the claim is made, the Agents’ E&O carrier
will respond by providing the agency with a defense. Typically this cost,
which is in addition to the limit of liability, averages around $12,000.
However, because the client suffered an uninsured loss does
not mean that the Agents’ E&O policy will pay. The basic premise
of professional liability involves the concept of legal liability. There
have been many books written on this subject.
One thing you don’t want to do if a claim is made against you—do not admit that you made a mistake. Admitting liability can seriously jeopardize your E&O coverage.
Utica National, a leader in this class of business since 1966, offers policy limits ranging from $500,000 to $20 million, although limits of $2 million are most common. Each policy contains a deductible that can apply to either just the loss or both the loss and defense costs. A common deductible for a $5 million agency is $5,000.
If you are a new agency owner or thinking of becoming one, this type of coverage is extremely important. While it serves to protect your agency, it is also coverage that is required in most agency agreements. At this time in the market, start up agencies may have a hard time getting this coverage. This could impact your ability to secure certain markets.
Unlike personal auto, no two E&O policies are the same. If the price sounds too good to be true when comparing E&O, chances are it is. Check the coverages/exclusions to make sure the policy you are buying protects you for what you do.
If you are unable to secure E&O coverage, a solid focus on E&O claims prevention is a must. Here are some helpful hints:
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By following these simple rules of thumb, you may avoid E&O claims and protect your business.