Errors & omissions insurance

Errors & omissions (E&O) insurance is a type of professional liability coverage for insurance agents and brokers. It helps protect you from financial losses when a client claims you made a mistake or were negligent while providing insurance services.

Key aspects of E&O insurance include

Protection against professional mistakes

• E&O policies can cover claims arising from errors, omissions, or negligent acts while performing insurance services. For example, if an agent fails to explain key policy terms or overlooks a coverage requirement, the policy may provide financial protection.

Legal defense and settlement costs

• E&O insurance typically pays for legal defense fees, settlements, or judgments resulting from claims made against the agent or broker. This matters because legal costs can be substantial, even when a claim is ultimately without merit.

Commonly covered losses

• Some typical scenarios covered by E&O include:
  • Failure to advise a client on appropriate coverage
  • Incorrectly completing an insurance application
  • Misrepresentation of policy terms (without intent to defraud)
  • Administrative mistakes affecting a client’s policy

Limitations

• E&O insurance does not generally cover fraud, intentional acts, or criminal behavior. If an agent knowingly engages in unethical or illegal conduct, the agent remains personally liable. Think of E&O as a safety net for honest mistakes, not protection for deliberate wrongdoing.

By carrying E&O insurance, agents and brokers can have financial support if a client alleges an error or omission, while still maintaining the ethical and professional standards required by California law.

Example question

Maria is a licensed property and casualty insurance agent in California. A client asks her to secure both homeowners’ and earthquake coverage. Maria places the homeowner’s policy but forgets to submit the earthquake policy application. Months later, an earthquake damages the client’s home, and the client discovers they have no earthquake coverage. The client sues Maria for negligence.

If Maria carries an E&O policy, how would this situation most likely be handled?

A. The E&O policy would cover legal defense costs and any damages, because Maria’s failure was an unintentional omission.
B. The E&O policy would deny coverage because forgetting to submit an application is considered fraud.
C. The E&O policy would cover the client’s property damage directly, replacing the role of insurance.
D. The E&O policy would deny coverage, because agents are never responsible for policy applications once they are completed.