When It's Human Error

We all make mistakes. To err is human, right? However, if you are a business offering professional services, such as an insurance agency, those errors can be costly! Errors & Omissions (E&O) insurance is designed to cover damage caused to clients by negligence, faulty advice or other failure of duty acts.

How does human error contribute to E&O claims? Even the most efficient agency is subject to human error. If you forget to periodically review a client’s coverage and fail to make a recommendation, such as purchasing additional coverage, you could be open to an E&O lawsuit.

A knowledge-based error can also cause an E&O claim. If you are a generalist helping a client with specialized insurance coverage needs, you may fail to make a recommendation of the proper coverage needed to protect the client’s risks.

Failure to document may be a reason for your agency to be brought into court. Do you have proper documentation showing all rejections of coverage offered? If not, you have no proof that you ever offered your client the coverage. This is why it’s imperative to insist agency employees keep proper documentation of all correspondence, meetings, conversations and insurance transactions with clients.

Another example of a possible E&O claim against an insurance agency is failing to place coverage for a client with a solvent insurance carrier. You can easily check an insurance company’s financial solvency through insurance rating organizations such as A.M. Best.

As insurance agents, we tend to spend our time worrying about the risks of others without giving a lot of thought to our own risks. Without E&O insurance, an insurance agency can be held financially responsible for all court costs, judgments, settlement fees, etc. if sued by a client. Whether a lawsuit has merit or not, the court may decide in favor of your clients. E&O coverage is too important for an insurance agency to do without!