Insurance companies provide clients with a variety of coverages to cover almost any event. But insurance companies themselves need coverage, as well. This industry has a lot of different facets and availability for mistake. Employees are human and mistakes come with the territory, especially when dealing with clients. That’s why insurance agencies should insure their business in case one of these mistakes threatens to cause a huge financial problem in the future.
Why Do Insurance Companies Need E&O Insurance?
Errors and omissions insurance (E&O insurance), also known as professional liability insurance, provides protection to a business against claims resulting in negligence or bad advice. For example, say an insurance agent at your agency suggests a certain policy amount to their client. The client takes that advice and signs up for the policy. Then, when an accident occurs, the client discovers that the policy amount wasn’t nearly enough to cover them. The client can then sue your insurance agency for giving bad advice, which is where E&O steps in.
A claim due to inadequacy or negligence can quickly turn to a hefty lawsuit. Unless your agency can comfortably handle paying for expensive legalities out of pocket, it’s important to have coverage.
What Do E&O Policies Not Cover?
There are limits to E&O insurance policies. Be careful when signing a policy to make sure that it covers important aspects such as <libel and slander.> These policies may also have limits on covering copyright.
Incidents that are typically excluded from E&O policies include:
- Intentional dishonesty
- Criminal acts
- Lawsuits from within the company (either by current employees or business partners)
- Property damage
For example, if a client claims they were purposefully given bad advice due to an agent at your agency discriminating because of race or sexuality, an E&O policy may not cover you. If you have issues with your agents or other employees, an E&O policy won’t make a difference. E&O policies typically step in when an agent makes an honest mistake and accidentally causes harm or financial loss to the client they advised. Mistakes can concern wrong changes in a policy, filing errors, bad advice and more. Lawsuits can be a drawn-out process that last years and cost a lot of money, especially if the client suing the company refuses to settle. There is plenty of room for error in insurance agencies, which is why E&O insurance is important.
Also Read: Make Sure E & O Coverage Insures Libel and Slander