Even for the most careful insurance agent, there is always the risk of facing a negligence claim made by a client. Although some of the lawsuits may be frivolous or unfounded, the agent is still required to bear the full cost of the lawsuit and pay the damages awarded as stipulated by the judgment. An E&O insurance helps protect insurance agents from bearing full liability of the defense costs and damages awarded in a lawsuit.
For insurance agents, the coverage focuses on financial losses caused by the agent for alleged malpractice, violation of good faith, and errors or omissions in the service offered by the policy holder. In some instances, the policy coverage caters for defense costs, even when the lawsuit turns groundless. When an insurance agent has an E&O insurance cover, the insurance company defends the claim and pays the damages up to the limits set in the policy. However, it’s important to point out that the liability limits vary depending on the type of policy.
Common E&O Policy Exclusions
The coverage doesn't include criminal prosecution, or other forms of legal liabilities under civil law that were not spelled out in the policy. In addition, claims that may relate to events or incidents that occurred prior to the coverage being activated are not covered. The coverage is active as long as the policyholder provides the covered products or services, and performs within the set statute of limitations. It is always good practice to discuss with the insurance company the scope and limitations of the coverage to ensure that it suits ones personal needs.
Gap in Coverage
A gap or lapse in coverage results from not renewing one's E&O policy immediately, will cause it to expire. Unaware of the harsh consequences, most agents incorrectly believe that during low peak seasons they don’t need continuous coverage. A gap in coverage could lead to the insurer to forfeit all prior acts. In such instances, an ERP –Extended Reporting Policy- can be purchased. An ERP covers incidents that occur while the policy is in force but are reported to the insurance company after the policy was deactivated or terminated. Nevertheless, a gap in coverage should not be associated with not renewing or terminating a policy due to death or retirement.
In most instances the policy features two deductibles; the amount paid to activate the coverage, and the one paid in case the policyholder is found to be at fault and total costs exceed the policy limits.
Given the nature of the insurance business, it’s prudent that any insurance agent should have E&O coverage to limit the financial damages that a lawsuit may cause. To get a well structured policy that caters for your individual needs, Insurance By Design is the right insurance company. Give us a call at 972-499-3414 to get a free Errors & Omissions Insurance quote.