Errors & Omissions (E&O)
Errors & Omissions (E&O) insurance is professional liability coverage that protects insurance agents and agencies from lawsuits claiming inadequate work, negligent advice, or mistakes that result in client financial losses. Think of it as your safety net when human error meets legal liability.
Why does this matter? Even the most experienced agents make mistakes - forgetting to update beneficiaries, miscalculating coverage amounts, or failing to explain policy limitations. Without E&O coverage, a single lawsuit could bankrupt your agency and end your career. State regulators and many carriers require E&O coverage before you can sell their products.
How it works: When a client claims you made an error that cost them money, E&O insurance covers your legal defense costs and any settlement or judgment up to your policy limits. The insurance company assigns lawyers to defend you and handles negotiations with the plaintiff. You typically pay a deductible (often $1,000-$5,000) while the insurance covers the rest.
You'll encounter E&O claims most commonly from coverage gaps you didn't catch, policy recommendations that weren't suitable for the client's situation, administrative errors like missed payments or lapsed policies, and failure to explain exclusions or limitations that later resulted in denied claims.
The biggest mistake agents make is thinking they don't need E&O because they're careful. Claims can arise years after a sale, and even baseless lawsuits are expensive to defend. Your agency's reputation and financial survival depend on having adequate coverage.
Example:
Rachel, a property insurance agent, sells a business owner's policy to a restaurant owner. During the application process, she fails to ask about the outdoor patio seating area and doesn't include it in the coverage. Six months later, a customer slips on the icy patio and suffers serious injuries, filing a $250,000 lawsuit against the restaurant. When the restaurant owner files a claim, the insurance company denies coverage because the patio wasn't disclosed or covered. The restaurant owner then sues Rachel for $250,000, claiming her negligent failure to properly assess the business resulted in uncovered liability. Rachel's E&O insurance covers her $15,000 legal defense costs and the $75,000 settlement, saving her from personal financial ruin and allowing her to continue her career.
How Earn Base Helps
While Earn Base doesn't provide E&O coverage, accurate commission tracking helps maintain clean records that can be valuable in dispute resolution.