E&O insurance is necessary for your insurance business, but what exactly does it cover? As an insurance provider, you're constantly providing advice to others, but you need to understand your own insurance policies as well. Make sure that you know your coverage in case the worst does happen.
What Is E&O Insurance?
According to Investopedia, "Errors and omissions insurance (E&O) is a type of professional liability insurance that protects companies and their workers or individuals against claims made by clients for inadequate work or negligent actions." It is designed to cover court costs and settlements for those times when you or your employees make a serious error and it negatively impacts a client. Even if the accusations are incorrect, the cost of going to court can bankrupt a business.
What Is Covered By E&O Insurance?
According to The Balance, "Individuals are expected to meet the standards of care that prevail in their industry." If you or your employees do not do this, your clients could suffer.
You make a mistake that costs your clients time or money. This mistake is an honest mistake due to poor work or due to negligence. If the impact on your client is a financial one rather than one that involves bodily injury, it could be a candidate for E&O insurance.
What Is Not Covered By E&O Insurance?
While many difficult circumstances are covered by E&O insurance, many others are not. You need to be aware of the common exclusions so that you can understand and plan for the implications of these circumstances. Knowing that these are not covered by insurance also encourages your agency and others to invest more time in planning to prevent these from occurring.
If you or your employees intentionally engage in criminal or illegal acts, these are not covered by errors and omissions. Nor is discrimination, acts that pollute, or the financial insolvency of your agency. Make sure that all of your business or organizational names are covered under your E&O insurance. If you're not named, you're not covered. The same applies to liability on behalf of others insured on your policy.
Some items may be covered under other policies, such as bodily harm or damaged property. However, you need to ensure that they are covered, and they will not be part of your E&O insurance.
There are a few items that may or may not be covered by your specific policy. For instance, some policies may cover libel, copyright infringement, and circumstances such as eviction and wrongful entry. If you have failed to secure or maintain financing, you may not be covered unless you offer financial services.
How do you know what is covered? Do what you'd ask your own clients to do: ask. Make sure that you are covered for what you need and that you have policies and plans in place to avoid issues such as illegal acts or discrimination.
At American Agents Alliance, we help your independent insurance agency navigate the ins and outs of everyday life at your agency. Talk with us about E&O insurance and learn more about our many other membership benefits.