No one in any business likes the idea of getting sued. But as an insurance agent, you may be at a higher risk for certain types of lawsuits than others. Here are three of the most common types of lawsuits filed against insurance agents – and what you can do to protect yourself.
E&O (errors and omissions) claims are one of the most common types of lawsuits filed against insurance agents. E&O claims can arise from various circumstances, but they all generally fall under the “You should have known better.”
For example, say you place a client with a carrier that later turns out to be financially unstable and goes belly up. If that client loses money because of it, they may file an E&O claim against you, alleging that you should have known the carrier was in trouble and placed them elsewhere.
Or, say you forget to add a newly-married couple to their auto policy, and they get into an accident. If they incur damages that aren’t covered because they weren’t on the policy, they could bring an E&O claim against you. They could allege you were negligent in your duties.
How to Protect Yourself
Ensure you always stay on top of industry news and trends. Read trade publications, attend conferences and webinars, and take advantage of other opportunities to stay educated about changes in the marketplace. The more knowledge you have, the better equipped you’ll be to make good decisions for your clients – and avoid potential E&O claims down the road.
You should also have an E&O insurance policy to protect you financially if you are sued or held liable for damages from an error or omission in your professional capacity. An E&O insurance policy for agents is an important safety net for insurance companies. It can cover the cost of your legal defense and any damages or settlements you may be required to pay. Since insurance agents are constantly dealing with other people’s money, they’re at a higher risk of being sued for negligence.
Even if you’re the best insurance agent in the world, there’s always a chance that a client could allege that you made a mistake in their policy. It’s better to be safe than sorry, and E&O insurance will give you the peace of mind of knowing that you’re protected in case of a lawsuit. When shopping for E&O insurance, find a policy that fits your needs. You’ll want to ensure that the policy covers your work and the products you sell.
Negligent Misrepresentation Claims
Another common type of lawsuit filed against insurance agents is known as a negligent misrepresentation claim. This occurs when an agent makes a mistake in representing their client – for example, by giving them inaccurate information about a policy or rates.
Let’s say you tell a client that their health insurance premium will be $200 per month when, in reality, it’s $300 per month. Suppose that client decides not to purchase the policy because of the alleged misinformation. In that case, they could bring a negligent misrepresentation claim against you. This happens more often than you think; a National Association of Insurance Commissioners study found that over 50% of all E&O claims against agents are for negligent misrepresentation.
How to Protect Yourself
To avoid being sued for negligent misrepresentation, you must ensure that everything you say to clients is accurate. This means double-checking information before passing it along and maintaining records of all customer communication. Good documentation will help validate your actions if a client becomes hostile later on. Ensure you understand the products you sell inside and out so there’s no room for error when communicating with clients.
If you need clarification, ask your supervisor or another experienced agent for help. It’s better to take an extra few minutes to verify information than risk facing a negligent misrepresentation claim.
Breach of Contract Claims
The third common type of lawsuit facing insurance agents is a breach of contract claim. This occurs when an agent fails to uphold the end of the agreement outlined in the contract.
For example, if you agree to place all of a client’s policies with a specific carrier, then place some policies with other carriers without their consent. That would be considered breaching. The client can bring a breach of contract claim against you if they suffer financial losses because they didn’t have coverage for something they thought was included in their policy.
How to Protect Yourself
To prevent being sued, familiarize yourself with all contracts before signing them – this goes for both carriers and clients. If anything in the contract is unclear or you don’t agree with it, voice your concerns and ask for clarification rather than just going ahead and signing. When it comes to something as important as a contract, it’s always better to be safe than sorry – one little mistake could bite you big time if someone decides to take legal action.
Another thing you can do is keep a close eye on your renewal dates. If you have a client up for renewal, reach out to them in advance to ensure that their policy is still active and that they’re happy with their coverage. If you wait until the last minute, you could be accused of breaching the contract if something goes wrong.
In the End
Being sued is every insurance agent’s nightmare. Still, by learning about the most frequent types of lawsuits against agents and taking precautions, you can help reduce your risk exposure.