The very nature of an insurance agent or broker’s job involves managing the risks and exposures of their clients. Despite this knowledge and expertise, they often neglect their own risk management needs. However, insurance agents and brokers may be more at risk of Errors and Omissions (E&O) exposures than the clients they serve. An ever-changing insurance legislation landscape plus frequent changes in the marketplace means there is a lot of information that agents and brokers have to stay on top of. Failure to stay informed can lead to costly E&O claims and settlements and can even cost an agent or broker their license in a more extreme case.
Because insurance agents and brokers are often sought out for their expertise in risk management and reducing exposures. But the term “expert” or “specialist” comes with its own set of liabilities. Below are some of the most common E&O risks of insurance agents and brokers.
Failing to Procure Coverage
When an agent does not acquire a specific policy that was asked for by the client, they can be held liable for failing to procure coverage. This happens more often due to paperwork error or accidental omission rather than gross negligence, but regardless of the reason, the agent or broker is still at fault if the client experiences a loss that they believed they were covered for only to find out they were not. To make up for the financial burden of an uninsured loss, the client can sue the agent or agency for the damages.
Failing to Recommend Proper Coverage
Similar to a failing to procure coverage claim, an agent or broker can be held liable if they failed to recommend a specific policy to their client. While most agents and brokers strive to recommend all possible coverage options for their clients’ known risks, they aren’t necessarily responsible for mitigating all possible risks in their capacity as an agent or broker. Regardless, a client may go after the agent or agency with an E&O claim in order to recoup money from any uninsured or underinsured losses, but this situation isn’t quite as black and white as other E&O claims are. Even if the claim is unfounded, the agent or broker would still incur costs pertaining to defending themselves against it. E&O coverage for insurance agencies can help pay for defense costs, and settlement costs too, if necessary.
False Information on Certificates of Insurance
An astounding 40% of insurance agency-related E&O claims are related to false information on certificates of insurance. False information on certificates is often the result of an administrative error, especially when agents and brokers submit certificates that were completed by admins, vendors or subcontractors without checking them first. This simple oversight can lead to reduced, cancelled or invalid coverage. Ultimately, the agent or broker would be at fault for not ensuring the validity of their certificates prior to submission.
No one is immune to making mistakes, and the amount of pressure put on agents and brokers to be experts in their field makes them especially at risk of an E&O claim. Obtaining E&O coverage for your agency and implementing a strong risk management approach can help soften the financial blow when an error or omission does occur.
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