4 risks covered by errors and omissions insurance for insurance agents

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As an insurance agent, you can prevent errors and omissions lawsuits by including endorsements with your certificates of insurance, following state regulations when selling online, watching what you say to unhappy clients, and following the proper procedures for issuing surety bonds.
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One of your jobs as an insurance agent is to protect clients from expensive lawsuits. But if a client thinks you messed up, you may be the one filing an errors and omissions insurance (E&O) claim.

Unfortunately, it's not always easy to know where errors and omissions exposures are – even for an insurance professional. Let's look at some situations that may create an E&O risk for your insurance agency.

1. You add language to certificates of insurance to list endorsements

Including endorsements with certificates of insurance is considered standard practice for the industry, but it's usually time-consuming. Some agents take a shortcut by adding language to certificates to list endorsements, especially if they have a lot to process at one time. However, that may subject you to an E&O lawsuit.

The problem is the words you add may be misinterpreted. An attorney could argue that the added language does not mean what you intended. If your client gets sued, they might point the finger back at you and file a professional negligence lawsuit.

You're probably better off avoiding the temptation to add additional language to certificates of insurance whenever possible.

2. You sell policies online that don't meet regulations in some areas

The internet has revolutionized the way insurance agents do business. However, the industry is tightly regulated. Agents may want to keep that in mind if they decide to sell policies online.

The main thing to remember is that all the rules remain in place. Your online transactions are governed by the same laws as your face-to-face ones. For example, just because someone in another state can request a quote doesn't mean you can sell them a policy. You still need to meet individual state licensing requirements. If you don't, a client may file a claim only to learn they were never legally covered.

3. You say the wrong thing when a client's claim is denied

Naturally, you want to go to bat for your clients when a claim is denied. Unfortunately, that can lead you into dangerous E&O territory.

Pleading your client's case makes sense if you think the carrier misunderstood the facts or misinterpreted the policy language. But think twice before you put anything in writing. Your client may use it against you if they decide to sue for negligence.

You also want to avoid taking the blame yourself for a claim denial. Saying that you caused the claimant's lack of coverage may set you up for an E&O lawsuit, too.

You can still guide your client through the claims process by:

  • Making sure they understand why they were denied
  • Helping them gather documentation for their claim
  • Facilitating communication with the carrier

Claims are stressful for your client. They'll appreciate it if you can ease the process for them. Plus, the service you provide may reduce your E&O risk.

4. You slip up when issuing a surety bond

You may not have a lot of experience with surety bonds, especially if you haven't worked with many construction or cleaning businesses. That inexperience can lead to mistakes, such as:

Giving a rate before the underwriting is done. Don't let a client pressure you into providing a rate. Offer them a range and explain you'll have a more accurate answer when the underwriting is finished.

Failing to properly execute the bond. Prepare the bond exactly to the owner's requirements. Otherwise, your client risks presenting a bid that is considered nonresponsive.

Not receiving approval from the surety. The surety can come after you if a claim is made on an unauthorized bond.

Not delivering the bond in time. You're responsible for getting the bond to your client on time. Confirm their address and hire a reliable delivery service.

Surety bonds can be tricky, so review all requirements before you agree to obtain one for a client.

Check out "6 common errors and omissions claims against insurance agents" to learn more about E&O risks.

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