Understanding The Common Causes of Insurance Agents E&O Claims

By Angelo J. Gioia AgentsofAmerica.ORG

Claims made against insurance agents can derive from many sources, these include quoting and proposing coverage, incomplete and inaccurate applications, written and verbal binders, uninsured exposures, including many others.

In general, E&O claims occur because of inadequate training and education, poor risk identification and analysis, lack of uniform practices and procedures, inappropriate organizational structure, lack of compliance with office practices and procedures, time constraints and/or chronic backlog.

Knowing the common causes E&O claims can point your agency in the right direction of knowing how to proactively avoid them. Here are some of the most common E&O errors made by agencies.

 Cancellations and Non-renewals:

  1. Failure to notify customer of policy cancellation or nonrenewal
  2. Failure to replace coverage upon cancellation or nonrenewal
  3. Failure to offer an Extended Reporting Period on a Claims Made policy
  4. Be certain that additional insured, mortgagees, loss payees, governmental agencies, etc., are all included in the notice of cancellation
  5. Advise insured in writing of non-renewal of policies in sufficient time. Obtain replacement coverage when possible. If unable, advise the insured in time for the insured to obtain coverage elsewhere.


  1. Failure to procure coverage by endorsing all policies when requested to make a change
  2. Providing inaccurate information to the carrier
  3. Failure to increase or decrease limits or add coverage in a timely manner
  4. Failure to identify or add an additional insured/loss payee
  5. Making a policy change based on an unauthorized instruction
  6. Failure to endorse all policies when requested to make a change

Marketing and Selling:

  1. Failure to identify a loss exposure and propose a risk management solution
  2. Failure to adequately identify value of the exposure and recommend adequate limits
  3. Errors or omissions on proposals
  4. Misstating the benefits or coverage provided by an insurance policy or the services offered by an agency

 New Business:

  1. Failure to process applications in an accurate and timely manner
  2. Failure to procure the coverage requested by the prospect/customer
  3. Failure to adequately identify exposures including advising the customer of any coverage gaps, limitations, or restrictions
  4. Failure to obtain, add or accurately identify additional insured or loss payees
  5. Failure to advise the insurer in a timely manner when coverage was bound by the agency on its behalf

Insured Claims Handling:

  1. Failure to provide timely notice of a claim to the carrier
  2. Failure to transmit a lawsuit to the carrier in a timely manner, resulting in a default judgment against the insured
  3. Failure to notify an insurance carrier when other coverage (or a defense) might be provided by another carrier or party
  4. Alleged claim investigation/adjustment error (e.g. – Giving authorization to an insured to make repairs prior to approval by the insurer)
  5. Failure to adequately explain policy provisions or misleading an insured to believe coverage will be provided when it will not



  1. Failure to procure a renewal policy
  2. Failure to duplicate prior coverage
  3. Failure to adequately identify and secure coverage for new exposures
  4. Failure to recommend adequate value/limit
  5. Errors when entering information on renewal applications
  6. Failure to adequately explain to the insured policy provisions or what must be done to secure a renewal

Policy Processing, Backlog & Automation:

The ability to process your work in a timely and an effective manner is a key Ingredient to avoiding E&O claims, Policies renew on certain dates, therefore, the   ability to manage and prioritize your work is key to avoid having a claim being made against you. Some tasks, like checking new policies when received, or processing some kinds of endorsements, may seem to be less urgent and get put aside. The truth is, all agencies can and should target to operate with reasonable turnaround for every transaction. When items are not processed in a timely manner, it leads to inefficiency and, potentially an E&O claims

Hiring, Training & Educating Your Staff:

When an E&O claim occurs, you can sometimes isolate it to an individual or group of individuals who may have contributed to the loss. Keep in mind it probably was never the intent of these people to cause harm to the agency. Rather, it probably was the result of a lack of training or compliance with procedures. But how can an agency know if they have the right person in the right position? Very few people intentionally do things wrong. Rather, they presume they are acting appropriately. Inadequate training can include a lack of understanding of the customer risk analysis process, inadequate product knowledge, and unfamiliarity with the agency management system. There are many reasons put forth by agencies as to why their personnel may not be adequately trained, but the most common are lack of time, lack of resources, or lack of motivation.

Office Practices and Procedures:

It is important that the entire agency staff know the rules but even more important that they follow them? Even if an agency has good practices and procedures in place, they are not helpful if agency personnel fail to adhere to them and this creates a real exposure to E&O claims. In some instances and depending on the issue and its relation to a potential claim, an agency may actually be better off having no procedures than having to admit, under oath, that there is no requirement that they be followed, or any consequence if they are not.   Consistent practices and procedures should be applied to reduce the chances of errors and to provide the service intended to the agency’s customers.

Without written guidelines, agency personnel are forced on an ad hoc basis to use their own best judgment in a variety of circumstances. While their judgment may be generally sound, problems occur when each person develops their own system of operation, some being better than others. Some agencies are actually an amalgamation of several smaller agencies, all operating under the same roof, and each of these mini-agencies may have its own way of doing business, which may or may not be appropriate. Consistency in practices and procedures regarding how business is done is a critical component in E&O claims prevention

Many E&O claims are the result of miscommunications or incomplete transactions between agency staff members. The more people who must touch a transaction to complete it, the more likely something will not get done as it should. In an automated world, organizations should be flatter and look for ways for transactions to be handled start to finish by the same person. Whenever a transaction is passed from person to person, the potential is increased for someone to make a mistake.

When examining E&O claims that have been made, it is often stated by agency managers and staff members that the real reason something was not done or that it was done incorrectly is that the person or persons involved simply didn’t have enough time. Most people feel that their agency is understaffed and that all problems would go away “if only we had more people.” Generally, insufficient staff is not the problem. Rather, it may be the ability of staff to manage the tasks that must be completed and use the tools available to free up time to complete all tasks required.

The insurance landscape, marketplace, and regulations are constantly changing. Moreover, with the rise in claims comes the rise in appeals stemming from those claims; the body of appellate law relating to errors & omissions claims against insurance producers is growing along with the frequency of claims. When a disaster strikes and insured’s have inadequate coverage, E&O claims are not far behind. There is no shortage of new, insurance-related issues. It is extremely important that you don’t assume anything and that you “Know the Rules & Stay Within Your Own Field and Expertise”  

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