Errors & Omissions Insurance (E&O)

Errors & Omissions (E&O) insurance is a critical form of professional liability coverage for insurance agents and brokers. It is designed to protect insurance professionals from financial losses arising from mistakes or negligence in the course of their work.

Key aspects of E&O insurance include:

Protection Against Professional Mistakes

• E&O policies cover claims arising from errors, omissions, or negligent acts committed while performing insurance services. For example, if an agent fails to explain key policy terms or misses a coverage requirement, the policy can 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 coverage is essential because legal costs can be substantial, even for claims that are 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. Agents who knowingly engage in unethical or illegal conduct remain personally liable. Therefore, E&O should be viewed as a safety net for honest mistakes, not as protection for deliberate wrongdoing.

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

Example

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 homeowners 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.