Errors and omissions insurance is a kind of professional liability protection covering you and your business from claims arising from mistakes in professional services. You’ll commonly see it as E&O insurance or professional liability insurance.
E&O insurance is an essential commercial policy that protects against common reasons insurance agents are sued. Below we dive into why errors and omissions insurance is so important, what it does and doesn’t cover, how much it costs, and more.
What Is E&O Insurance?
Many small business owners are familiar with general liability insurance, which protects against bodily injury, property damage, advertising injury, and other types of claims. E&O insurance is a specialized subset of liability insurance covering you from costly mistakes that result in lawsuits or settlements. This can include negligence, misrepresentation, and inaccurate advice.
While you’ll see errors and omissions insurance offered across industries, policies created for insurance agents can address their unique business risks. These policies typically cover you (the business owner) and the employees and subcontractors working for your business.
How Does E&O Insurance Work?
Errors and omissions insurance protects you from a variety of claims brought against your business. Say you counseled a client to buy a policy from a specific insurance company. At the time you spoke, the insurer seemed to be in good financial standing and profitable. Your client bought the policy based on your advice, only to have the company fail a few months later.
Or say a small business owner bought a policy with you. You offered them several choices with varying coverages, and they chose to go for the least expensive. But after suffering a minor fire loss, your client realizes their business was underinsured and that there was a 100 percent coinsurance clause.
In both cases, the clients file a lawsuit. Your errors and omissions insurance can step in and help cover attorney fees, court costs, administrative costs to build your case, settlements and judgments, and more—up to your policy’s limits. It’s also important to note that professional liability insurance only covers you when both incidents and claim filings happen when your policy was active.
Is E&O Insurance Required for Insurance Agents?
Professional liability insurance isn’t required by law for insurance agents, but the carriers you work with might ask for it before you can sell their policies. A brokerage firm or insurance agency you’re working with might also ask to see proof of errors and omissions insurance before passing on new business to you.
Even if you aren’t required to carry errors and omissions insurance, it’s still a good idea. We’re only human, and mistakes happen. Even when they don’t, clients can sue for perceived errors, costing you and your agency thousands to hundreds of thousands of dollars in legal fees alone.
What Is E&O Insurance Best For?
Errors and omissions insurance is best for protecting against the legal cost of errors. Some reasons P&C and life and health insurance agents get sued include:
- Failing to provide insurance
- Failing to carefully and effectively explain a policy’s provisions
- Failing to recommend coverage
- Failing to make policy change requests correctly
- Making an administrative error
- Misrepresenting products
E&O insurance is crucial for any insurance agent who’s at risk of being sued by their insureds for financial losses. This includes new or experienced agents, self-employed agents or those working as an employee, or people running an agency of one or one hundred and beyond.
What Does E&O Insurance Cover for Insurance Agents?
While specifics vary by policy, errors and omissions insurance can shelter you in cases of:
- Accidentally giving the wrong advice
- Missing a deadline for your service
- Slander and libel when someone accuses you of communicating untrue things about them or their business
- Errors made by your team, subcontractor, or independent contractor, such as missing a waiver of coverage
- Claims of negligence and inadequate work
- Accusations of verbal promises that weren’t fulfilled
- Eligible claims brought against you after you leave the industry or retire
While it’s common for E&O insurance to cover these situations, read policy terms carefully before signing to see what costs (and how much) are covered. For instance, your E&O policy may only cover defense expenses and not settlements. Or it may not pay for attorney fees. Make sure your E&O business insurance policy meets your needs if you’re ever sued.
What Are Common Exclusions in an Insurance Agent’s E&O Policy?
Common exclusions in an insurance agent’s E&O policy include claims relating to:
- Intentional wrongdoing and illegal and fraudulent acts
- Bodily injury, property damage, and advertising mishaps (covered by general liability insurance)
- Employees injured or sick as a result of their job (covered by workers’ compensation insurance)
- Workplace harassment or discrimination (covered by employment practices liability insurance)
- Ancillary services provided outside the agent’s core duties (such as accounting services)
- Cyber liabilities from data breaches (covered by cyber insurance)
How Much E&O Insurance Do Insurance Agents Need?
How much errors and omissions coverage you need depends on your financial statements, finances, the value of your assets, and your income. Knowing your financial standing is important because it could represent how much you’d have to lose if a client sued you. You’ll want E&O coverage at least as close to your total wealth as you can afford.
Another factor to consider would be the greatest possible loss resulting from one client lawsuit if you or an employee made a mistake. Also think about the number of annual transactions you make and your total lawsuit risk from these transactions. Your E&O policy should be robust enough to cover these amounts.
Errors and omissions insurance policies for $1 million to $2 million are typical. Specifics vary by policy, but that could mean you’re covered up to that amount for any single claim and the life of the policy (typically a year). Any expenses beyond those amounts, you’d pay out of pocket.
It’s important to talk to your insurer about your financial and business situation so they can help you determine how much insurance leaves you adequately protected. They'll also provide an insurance quote that you can compare to decide which policies offer the best coverage at the most affordable price.
How Much Does a Business Insurance Policy Cost?
In general, errors and omissions insurance costs between $500 to $1,000 per year per employee. If it’s just for yourself, the average cost is typically cheaper because of lower limits and only one person needing coverage.
Your errors and omissions insurance cost as an agent can vary based on your:
- Location
- Business claim history
- Number of agents
- Revenue
- Coverage limits
- Employee training
- Type of insurance sold
E&O insurance tends to be pricier for P&C insurance agents than for life and health agents. If you’re more than one kind of agent, the one you earn more than 50 percent of your commissions in determines which type of E&O policy you must purchase. However, your E&O policy would still cover you in your other role.
When factoring in costs, keep in mind that before you can buy errors and omissions insurance, your insurer will likely want you to have general liability insurance and commercial property insurance in place (if applicable) first before they’ll sell you a policy. These two coverages are generally packaged within a Business Owners Policy (BOP).
Other insurances you might need are workers’ comp if you have employees (required in many states) and cyber liability insurance because you probably store sensitive information about clients and employees digitally.
Who Pays for E&O Insurance?
If you’re working as an insurance agent in your own business, you’re usually responsible for buying E&O insurance that covers yourself and any employees.
If you’re an employee working in an agency or brokerage, you may choose to purchase additional E&O insurance for yourself to cover the gaps left behind in your boss’ policy. Having your own policy is also helpful to ensure you’re covered when transitioning between agencies.
Who Can Sell E&O Insurance?
You’ll find E&O insurance coverage with major insurance providers like:
You’ll also find it with specialized insurance providers like:
- National Association of Professional Agents (NAPA)
- American Agents Alliance
- SuranceBay Agent E&O
- Ryan Specialty Group (RSG)
You can also check with your current business insurance company to see if it can add errors and omissions insurance to your policy.
Don’t Skip on E&O Insurance
As an insurance agent, you’ll likely need E&O insurance to do your job. Even if your boss has you covered, you probably still want to consider a policy for yourself for better protection. While dishing out money for yet another insurance policy can seem daunting, remember that E&O insurance protects you against many common types of lawsuits against agents. Having the right policy and the right coverage can save you and your business from financial hardship.
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