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4 Common E&O Claims Against Insurance Agents

Before lawyers consider taking on an E&O case against insurance agents, they need to make sure there is legal groundwork for their client's claim. Every case is different, but for the most part, there are three broad arguments that can be made against insurance agents. Knowing these arguments can help you prevent these lawsuits in the first place, or, at the very least, prepare your agency's defense.

Claim 1: The Agent Failed to Procure Coverage

Claim 1: The Agent Failed to Procure Coverage

This is the most common claim against insurance agents: the client told the agent to acquire a specific policy, and the agent never did. When a loss occurs, the coverage that the client thought was in place isn't there to cover costs, though it should have been. To get compensation, the client tries to sue the agent instead.

The insured may succeed, depending on their answers to these questions:

  • Did the agent know to get the requested coverage? If the client has evidence that you knew to get coverage but failed to do so, they have a case. This can include requests for policy changes, too.
  • Could the loss have been covered by the requested coverage? If the coverage wouldn't have covered the loss anyway, you might have an irate client on your hands, but probably not a merited lawsuit.
  • Did the insurance company deny the claim even though the proper coverage was in place? If you did acquire the proper coverage and the insurance company wrongfully denied the claim, you aren't liable. The issue is between the insured and the insurance company itself.

To learn more about lawsuits over failing to procure coverage, read the article, "Avoiding Common Errors & Omissions Claims against Insurance Agents."

Claim 2: The Agent Should Have Recommended Insurance

Claim 2: The Agent Should Have Recommended Insurance

This is a hard claim for the plaintiff to successfully make because the law is on the insurance agent's side. Your job is to procure the coverage that the client requests, but you aren't necessarily responsible for managing all their risks.

Say, for example, a client purchases some common business insurance policies from you, but never requests Cyber Liability Insurance. They experience a data theft, which isn't covered by any of their other policies. In a scramble to recoup losses, they come after you with a lawsuit for failing to recommend the coverage.

Their argument is that you should have known they would be handling sensitive data. In this scenario, they don't have a very strong claim. You probably should have suggested it, just as good practice, but you may not be liable if they never disclosed that information about their business.

In certain cases, though, the claimant may have a strong case. Say they move into a flood-prone area, and you've been insuring people's homes in the area for a long time. You're well aware of the flood risk. If you fail to recommend appropriate coverage and the client suffers flood damage, you could be liable.

Claim 3: There Is a Special Relationship with the Agent

Claim 3: There Is a Special Relationship with the Agent

This argument implies that the agent was well aware of the client's insurance needs and acted as a sort of risk manager. The plaintiff argues that you should have recommended insurance coverage based on your knowledge. For example, say…

  • You meet with the client and receive an extensive and detailed picture of their risks. Being thoroughly briefed on their exposures means you are responsible for recommending adequate coverage.
  • You agree to act in a risk management role and ascertain the client's risks.
  • You actively solicit the client's business and are familiar with the client's geographic area.

Given the extent of your knowledge, a court may agree that you should have reasonably known and addressed your client's risks. (Related reading: "Why Insurance Agents & Claims Adjusters Face Errors and Omissions Claims.")

Claim 4: The Agent Didn't Disclose Everything about the Policy

Claim 4: The Agent Didn't Disclose Everything about the Policy

Because the client trusts you to be the insurance expert, it's your responsibility to disclose the details of their policies. Be sure to educate clients about…

  • Their coverage options.
  • What the policy does and doesn't cover.
  • How much the policy costs.
  • What can affect their rates.

If a client feels misled about their coverage, they can try to sue your agency. To prevent these claims, educate yourself about your products, and enact good business practices when selling to clients.

Insurance Agents: Tips for Defending against a Claim

Insurance Agents: Tips for Defending against a Claim

When faced with a professional negligence claim, you will likely argue that you only did what your client asked of you. But to strengthen your case, you need to take a few steps in your everyday business routine:

  • Document all client interactions.
  • Respond to client requests immediately.
  • Educate clients about their risks and how their coverage works.
  • Don't take on work that you feel is beyond your level of expertise.
  • Use an agency management system to stay organized and automate renewal reminders.

By implementing these practices, you reduce your own risks and can support claims made in your defense if you are sued.

Remember, too, that your Errors and Omissions Insurance can cover your legal expenses (e.g., attorney fees and settlements or judgments) when you're hit with a professional liability lawsuit. To learn more about E&O coverage, read, "What Does E&O Insurance Cover for Insurance Agents?"

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