Risky Business
A Small Business Insurance Guide for Independent Insurance Agents and Brokers

Chapter 2: How Insurance Protects Your Agency
Part 3: Why Brokers & Agents Need Professional Liability Insurance

Professional Liability Insurance (sometimes called Errors & Omissions Insurance or E&O) is an extremely important coverage for brokers and agents. This policy protects your business assets when your clients claim your professional services aren't up to snuff.

This is how a professional liability claim usually unfolds:

  • Your client believes you've made a professional error or oversight or that you've breached the terms of your contract.
  • That error — whether real or perceived — costs your client money.
  • Your client sues your business for damages.

Sure, people aren't perfect. It's possible that you could make a professional mistake or miscommunicate with a client. But in your business, these errors can have devastating financial consequences. Even when you do everything right, your client could still lose a lot of money from, say, a poor-performing investment.

Whenever a client's expectations aren't met, you are at risk for a professional liability lawsuit. And here's something worth noting: brokers and insurance agents can be held independently liable for professional liability claims, even if they represent a larger company.

Even if you represent a larger company, you could be individually named in a lawsuit for the advice you gave a client.

You can learn more about your professional liabilities by reading the section, "Understanding Common Professional Liability Claims."

If your business should ever face a professional liability claim, your insurance protection can help you pay for expenses such as…

  • Legal defense fees.
  • Settlements.
  • Judgments.
  • Other court fees.

Your Professional Liability policy can pay for these expenses, up to your stated limits, even if the claim is fraudulent or thrown out in court. And that's a good thing: according to a U.S. Chamber Institute for Legal Reform study, frivolous claims can cost small-business owners between $2,000 and $5,000 in lawyers' fees alone.

Meritless lawsuits can range between $2,000 to $5,000 in legal defense costs.

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Next: Part 4: Surety Bonds for Stock Brokers and Insurance Agents

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