E&O: Errors & Omissions

Insurance Agents/Brokers

The insurance agents/brokers segment is large in numbers of organizations and in premium volume. The two primary segments are property/casualty agents/brokers and life/health/benefits agents/brokers. In addition to the standard retail agent, there are many other types of agents and brokers, including wholesalers, underwriting managers, specialty agents and related service providers. Virtually all insurance agents and brokers are required by their insurance markets to carry professional liability, also called errors and omissions (E&O), insurance.

While there is a legal distinction between agents and brokers, that distinction is beginning to erode and the terms are frequently used interchangeably. In this document we will use the term broker to describe both agents and brokers.

Exposure

The typical insurance brokers professional liability claim is for failure to place coverage or failure to place adequate coverage. The specific situations vary considerably and usually occur when an insurer denies a claim.

Insurance brokers do have professional liability claims. The average claim frequency varies from one out of six to one out of eleven each year depending upon size, location, type and business. Overall, approximately one out of eight insurance brokers has a professional liability claim each year.

Severity varies greatly and is most impacted by the specific circumstances of the claim. The type of coverage provided by the broker to the claimant and the claimant's industry also have a significant impact of the severity potential of a particular claim. For example, the severity of an insurance brokers claim for failing to place property coverage on an auto that has a tree fall on it is significantly less than the severity of a claim for failing to place coverage for a large ship that sinks.

Underwriting insurance brokers professional liability insurance requires a detailed look at the operations of the applicant. The basic exposure base used is typically either revenues or premium volume. Added to this base rate are a whole range of business and operating factors. The frequency and severity potential for a particular insurance broker vary greatly depending upon these operating factors. For example, the severity potential of the insurance business handled, as noted above, impacts the underwriting and rating factors. Other factors include location, management experience, prior claims, internal procedures and employee training.

The typical insurance brokers claim involves a claim by the insurance broker's insured client that is denied by the insurer. The client then brings a claim against the insurance broker for failure to place coverage or failure to place adequate coverage on behalf of the client. Errors can vary dramatically depending upon the type of operation and the particular situation. Examples of claims can be found by clicking on Claim Examples. In addition, insurance brokers may be liable for insurer insolvency (Click here for details)

Often, a claim or lawsuit may not involve a clear error or omission. For example, a client may not be happy with the result of a claim filed with an insurer and therefore brings a claim to obtain additional compensation. For an insurance broker, these types of claims can be just as difficult and expensive to defend as a clear-cut error. Insurance typically pays for the cost of defending this type of claim as if it were a clear-cut error on the part of the insured consultant.

Professional Liability Insurance

Insurance brokers professional liability insurance, sometimes called errors and omissions or E&O insurance, is available from a range of specialty lines insurers. Coverage and pricing vary greatly depending upon the type of professional operation, the specific services provided, the broker's size and its location.

Tennant Risk Services Insurance Agency LLC ("Tennant" or "Tennant Risk Services") underwrites insurance brokers professional liability insurance in its exclusive program. The program targets specialty brokers or brokers with unique operating characteristics. In addition to professional liability (errors and omissions or E&O) coverage, Tennant can provide insurance brokers the option to add low-cost directors and officers (D&O) and employment practices liability (EPL) coverages to the professional liability coverage. The combination offers separate limits for each coverage selected with discounts for the combined coverage.

Coverage is available for all size and types of insurance agencies including:

Coverage for insurance brokers professional liability is provided on a claims-made basis. Limits and deductibles vary with the size and type of insured. Standard limits for most small to medium sized organizations start at $1.0 million.

Tennant can provide E&O coverage with defense outside the limits, three-times aggregate deductible, up to 5-years Extended Reporting Period option, a consent to settle provision and insolvency coverage. As noted above, Tennant also provides optional low-cost employment practices liability (EPL) coverage. The EPL coverage addresses the specialized needs of the insurance industry such as defamation and invasion of privacy, and does not have any downsizing or intentional acts exclusions. The coverage is provided with separate limits and includes coverage for independent contractors.

Coverage for independent contractors is one area that requires review because most forms require independent contractors to be specifically added. Like other professional organizations, insurance agents and brokers may have part or all of their sales force set up as independent contractors rather than employees. Tennant can provide both E&O and EPL coverage sections with automatic coverage for independent contractors. For those organizations with independent contractors, this approach is a benefit because the coverage does not require continual reporting to ensure that independent contractors are covered.

Tennant Risk Services provides coverage for a wide range of insurance agents and brokers. Please let us know your client's needs and we will provide you with information and assistance with your particular situation or account, and professional liability coverage.

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