Don’t Be a Victim of Errors & Omissions

It’s a given that financial professionals make mistakes. They’re human, after all. The key is for them not to become a victim of their own errors and omissions. Let’s consider that statement a bit further.

It’s totally natural for insurance, investment, and real estate professionals to make errors and omissions. Why? Because every day they . . .

  • address complex problems,
  • are required to follow highly demanding regulations, and
  • operate in an environment of uncertainty and rapidly changing technology.

Given these forces, it’s a wonder financial professionals don’t make more mistakes than they do.

The issue isn’t that they make mistakes. The problem arises when they become a victim of their mistakes. This can happen in two different ways:

First, financial practitioners sometimes make a mistake and then shrug it off. Rather than assess why they erred in order to prevent it from happening again, they just put the whole incident behind them. In this scenario, an unwillingness to reflect on one’s mistakes and to make adjustments in business practices can trap financial professionals in a perpetual cycle of errors & omissions.

Second, failing to learn from their mistakes can be compounded by not having the proper amount and/or type of E&O insurance in place. Without appropriate liability protection, financial professionals become victims once again. They’re forced to pay out of their own pockets for legal judgments, legal fees, and court costs potentially amounting to tens, if not hundreds of thousands of dollars. By failing to protect themselves, they run the risk of losing their firms, their savings, and their financial security. They become victims of self-created mistakes, and it’s not a pretty sight.

There’s a better way . . . purchasing quality and affordable E&O insurance.

What Can a Full Policy of E&O Insurance Do for You?

Errors & Omissions

The key to not becoming a victim is advance planning. Financial professionals must acknowledge that . . .

  • the risks of getting sued are large,
  • that the potential costs of losing a client lawsuit are immense, and
  • that sensible business professionals arrange to transfer their liability risks to an E&O insurer in order to make them more manageable.

At the end of the day, thinking proactively and realistically about client lawsuits is the ultimate way to avoid victimhood.

So what can a full policy of E&O insurance do for you? In a nutshell, E&O insurance provides financial protection for your business. It generates funds that cushion the financial outcomes of losing a client lawsuit. It does this by providing money . . .

  • to pay for an attorney,
  • to cover the expense of legal judgments and settlements, and
  • to cover court costs that may be levied against you.

By having comprehensive E&O insurance protection, financial professionals avoid becoming personally liable for the direct and indirect financial implications of their error & omissions, up to their policy’s limits.

E&O insurance also provides two less obvious benefits. First, it provides assistance from a highly trained, professional claims adjuster who will help investigate and settle the claim. This allows financial professionals to continue working in their business rather than having to focus on dealing with a client complaint and/or lawsuit. Second, having E&O insurance means financial professionals don’t have to obsess about the financial risks of getting sued. They can simply concentrate on doing great work for their clients without endlessly worrying that their words or actions might spark a lawsuit.

Get Your Full Errors & Omissions Insurance Policy Today

The essence of victimhood is letting external events hijack one’s life. Financial professionals who take control of their destiny will never be victims, in part because they arranged to purchase a full Errors & Omissions policy at the earliest opportunity. How to best proceed? By looking into comprehensive and affordable E&O insurance from online providers who make shopping for coverage quick and convenient. One such entity is EOforLess.com.

Sponsored by the National Ethics Association, EOforLess.com provides a user-friendly platform for financial professionals to easily shop for and purchase high-quality E&O insurance protection. Their website helps professionals buy E&O coverage directly from an insurer without having to go through a broker. Using the firm’s class-leading online shopping platform, agents and advisors can quickly select their desired coverage level and then “click and bind” their policy in minutes. What’s more, buying through EOforLess.com means they never hassle with shopping delays, hidden fees, or deductibles (for life/health policies only).

Bottom line: financial professionals who wish to never become E&O victims must take control of their futures. They must do their best to prevent mistakes. But if they do make one, they should learn from it so they never repeat it in the future. And most importantly, they should purchase E&O insurance so that a mistake never becomes a permanent financial catastrophe—for their business, for their families, and for their financial security.

E&O Insurance

The benefits of E&O insurance aren’t what they seem initially. Many financial professionals view E&O insurance as a way to protect themselves against client lawsuits. If they win in court, their policy will pay for their attorney fees. If they lose, it will cover the cost of the legal judgment, along with court expenses. Is that all there is? Hardly.

The benefits of E&O insurance include a host of additional direct and indirect provisions, all designed to preserve an insurance, investment, or real estate professional’s financial viability, both today and decades from now. Let’s discuss a few of these “hidden” benefits.

In terms of direct benefits, E&O insurance policies typically not only pay for attorney fees, but also for:Errors & Omissions Insurance

  • Expert witness charges,
  • Copying, filing, and software-related expenses,
  • Arbitration or mediation costs, and
  • Expenses related to settling the claim.

When you add the above cost items to the expense of hiring an attorney and potentially of paying for a large legal judgment, financial professionals might face tens of thousands, if not hundreds of thousands of dollars, in claim expenses. E&O insurance policies are designed to transfer these obligations from the insured to the E&O insurance company.  When compared to the direct financial exposure of losing in court, paying for E&O insurance premiums makes a lot of business sense. It allows financial professionals to trade a potentially catastrophic and highly unpredictable expense for a much smaller, more predictable expense. Most business people find this a trade well worth making.

What about indirect benefits? In addition to providing cash to pay for the financial aftermath of a successful client lawsuit, E&O insurance policies also provide three non-financial benefits.

  • The first is the ability to have an E&O insurance claims adjuster on your case to facilitate the investigation and settlement process. This person teams up with your attorney to handle all of the steps involved in negotiating with the plaintiff and in tracking your case’s progress through the legal system. Without E&O insurance, you’d have to handle all this work yourself, reducing the time available to work on your business. “Many financial professionals who are fighting a major client lawsuit find it difficult to focus exclusively on their normal work,” says Steven R. McCarty, Co-Founder and Chairman of EOforLess.com and of its sponsor, the National Ethics Association (NEA). “As a result, their compensation often plummets during this time, causing significant financial hardship.”
  • The second indirect benefit of having E&O insurance is the ease of mind that comes from knowing you’re protected against potential client lawsuits. Knowing you don’t fully “own” the risk of getting sued can reduce your stress and make it a lot easier to sleep well at night and to work productively during the day. “Similar to having good health, you simply can’t put a price tag on peace of mind,” says NEA’s Steve McCarty.

Protection

  • The third indirect benefit relates to helping financial professionals avoid the errors and omissions that generate legal action. At EOforLess.com, all insureds receive extensive ethics and compliance guidance that helps them not only do business the right way from a moral perspective, but also in a way that does not violate industry regulations.

How does this work? To qualify for E&O insurance from EOforLess.com, financial professionals must first join National Ethics Association. Membership provides a number of important privileges, including:

  • The ability to stamp their business with the “Ethics.net Registered Member” seal, which enhances online reputation.
  • The opportunity to purchase a Certified Background Check on themselves and their business, which builds consumer trust and shortens the sales process.
  • Visibility in the NEA Member Directory, which can generate traffic back to the professional’s own website.
  • Access to hundreds of local and national discounts for their business or home, which saves money.

But the most important indirect benefit of E&O insurance is access to NEA’s loss-control guidance. This comes in the form of ethics and compliance educational content that motivates advisors to follow ethical and compliant business practices. This information can be found in the “Ethics Center” at Ethics.net. Plus NEA also frequently shares this guidance with members via their periodic newsletters and bulletins.

By knowing how to treat their customer right and how to follow all relevant regulations for their license type, financial professionals will greatly reduce their risk of getting sued. This may well be the most powerful E&O insurance side benefit of all.

E&O Insurance

Many financial professionals ask themselves, “When is the right time to take out an E&O insurance policy?” As with many things in business, the answer is, “it depends.”

On one level, the answer is cut and dried. Almost all insurance or financial advisors who are in business for themselves should have E&O protection. Why? Because adverse legal judgments can put them out of business if they lack the personal financial resources to pay for them. And even if they win in court, paying for legal fees can be challenging even for those making a good living.

But there are at least five times in which having E&O insurance is even more important than usual. Let’s review each one:

  1. When you first go into business. At this point, agents or advisors will typically have a lower income and fewer assets than those who are more established. At the same time, their knowledge base may be shallower. Consequently, they may be at higher risk of making a mistake than more experienced professionals are. The combination of fewer resources and greater risk adds up to a compelling reason for new agents to purchase E&O insurance. If that weren’t enough, inexperienced agents might want to consider what’s at stake were they to lose an E&O claim in court. According to a major E&O insurance underwriter, the average claim cost for life insurance disputes is about $40,000. That number grows to more than $70,000 for pension-related claims and to $150,000 for disability-insurance lawsuits. Agents with limited assets and income would be hard-pressed to make good on legal judgments such as these.
  2. When you add a new product-type to your portfolio. Even though advisors might have years of experience, beginning to sell a new product can be risky from an E&O insurance perspective. If they fail to understand how the products work and for whom they are best suited, they can easily make mistakes that spark E&O disputes. In an environment that is tilting more heavily toward fiduciary best practices, recommending a product that isn’t in a consumer’s best interests can have devastating legal and financial consequences.
  3. When you enter a new consumer market (example: providing disability insurance to physicians). Agents with extensive experience with one type of consumer might decide to diversify into another segment. The problem is, they might not fully understand consumer needs and expectations in this segment and either recommend the wrong product or provide inappropriate levels of service.
  4. When you have decades of industry tenure and have grown a highly successful business. In this case, you’ll probably have a deep knowledge base and fully understand the needs of your buyers. However, being successful makes you a litigation target because clients and their attorneys assume you have greater ability to settle lawsuits. In other words, the greater your financial resources, the larger the litigation target on your back.
  5. When you are too busy to defend yourself against nuisance claims. Sadly, more and more consumers are bringing nuisance claims against their financial providers. They and their attorneys assume that most E&O insurers will simply settle claims for $25,000 or $50,000  just to make them go away. Without having an E&O insurer—and claims adjuster—in their corners, busy financial professionals can easily spend hundreds of hours defending themselves against nonsense disputes. For these individuals, buying E&O insurance shields them from the hassles and expense involved in such cases.

Protection

In the above five scenarios, E&O insurance provides the money and expertise necessary to defend financial professionals against client lawsuits, both legitimate and bogus. E&O insurance provides money to pay for attorney fees, to cover the cost of legal judgments and settlements, and to pay the court for its expenses. Agents and advisors who have been sued can attest to the value of having E&O insurance: less worry, less stress, and less time spent negotiating with unhappy clients. For most individuals, achieving those benefits is well worth the cost of E&O insurance.

However, understanding the value of E&O insurance at certain times of a financial professional’s career is just the beginning. The challenge then becomes to buy quality, affordable E&O coverage as conveniently as possible. Many financial advisors find that online E&O programs are a great way to get E&O protection at a reasonable cost and with a minimum of time and effort. EOforLess.com is one such firm that has emerged in recent years.

Launched in 2008, EOforLess.com provides E&O insurance for life/health insurance agents, property-casualty agents, registered investment advisor representatives, and real estate agents and broker-owners. It has pioneered the use of online shopping to make buying E&O insurance easier and simpler than ever before.

Given the risks insurance and financial professionals encounter over the course of their careers, there isn’t just one right time to purchase E&O insurance; there are many right times based on an agent’s specific needs and challenges. The key point is this: financial professionals who wish to do business responsibly—protecting their businesses, their families, and their future financial viability—rely on E&O insurance to keep them safe. What about you?

E&O Insurance for P&C Agents

What is the best E&O insurance policy for P&C agents? The answer depends on . . .

  • the precise nature of your P&C business,
  • whether you’re a solopreneur or owner of an agency with multiple agents and customer service representatives, and
  • the risk profile of your customer base.

But at the most fundamental level, the best E&O insurance policy for P&C agents hinges on what’s best for your particular needs.

That may sound overly simple. But we can’t tell you the number of times we’ve heard of P&C agents buying E&O insurance that omitted coverage for an activity that was central to their business. When this happens, it’s clear the agents either hadn’t thought about the risks they faced while doing business or didn’t do their due diligence before buying E&O insurance. By failing to do their homework, they ended up buying coverage that could leave them unprotected in the event of a client dispute.

Don’t let this happen to you. Instead, adhere to the E&O insurance buying process recommended by EOforLess.com, an online E&O provider sponsored by the National Ethics Association. This process involves three steps:

  • Know the basics of E&O insurance protection.
  • Know the fundamentals of buying E&O insurance.
  • Know the subtle features that distinguish one E&O insurance policy from another.

Let’s take a closer look at each step.

The Basics of E&O InsuranceAt its core, E&O insurance prevents P&C agents and brokers from being saddled with all of the costs and damages resulting from making a mistake or failing to perform a key activity on behalf of a client. E&O insurance policies provide money to pay for the financial implications of a customer claim, which may result in a lawsuit. In such situations, E&O insurance provides cash . . .

  • to pay for an attorney to defend you,
  • to pay for legal judgments should you lose in court, and
  • to handle any court costs levied as a result.

When you have E&O insurance, you transfer the above financial exposures to an insurance company, which frees you from financial ruin, stress, worry, and potentially the loss of your business. You also get the services of an E&O claims adjuster, who will assist in the resolution of the claim.

Knowing these basics, it’s also important for you to review two key elements of a proposed insurance policy: the insuring clause and the list of exclusions. The insuring clause is the heart of the policy, defining the scope of protection offered. For example, here is a typical insuring clause for an E&O insurance policy:

“The Insurer shall pay on behalf of the Insureds, excess of the applicable Retention and within the Limits of Liability as stated in the applicable Certificate of Insurance that Loss which the Insureds become legally obligated to pay resulting from a Claim for a Wrongful Act solely in rending or failing to render Professional Services.”

Before purchasing any policy, make sure to study this clause carefully and to ask the insurer or entity from which you are purchasing the policy to clarify any confusing points.

If the insuring clause defines the benefits of the policy, the exclusion list defines situations in which those same benefits will not be available to the insured. Most policies exclude losses under many scenarios that might not initially be obvious. For example, did you know that E&O policies typically do not cover financial penalties imposed by regulatory agencies such as FINRA, the SEC, or state insurance departments? Or that they often don’t cover class-action lawsuits? 

Key takeaways regarding both the insuring clause and exclusions: Don’t buy an E&O insurance policy without first reading the policy language. And if you don’t understand something you read, ask your E&O provider—the agent, broker, membership organization (for group coverage), and the insurance company—to provide details. The crucial time to fill your knowledge gaps is before you buy a policy, not after you need to make a claim.

The Fundamentals of Buying E&O InsuranceOnce you understand the basics of E&O insurance, the next step is to search for quality coverage at an affordable price. The way to do this is to establish the criteria that will guide your search. Here are the major ones:

  • Do you want an individual policy or group coverage? The former may be required if you have a large agency with unique risks. But the latter may be more suitable for solopreneurs and small agencies with standard operating risks.
  • Do you prefer a full or streamlined underwriting process? The former may be necessary for large agencies, but the latter may be available for independent agents with less complicated businesses.
  • Do you wish to deal with an E&O agent/broker or with an E&O insurance program/carrier? The advantage of dealing with an agent is that you’ll have assistance selecting the right coverage for your specific situation. This is helpful when your business risk is large or complex in nature. The disadvantage is that agents will need you to complete a detailed application before shopping it around to several insurance companies, a process that may take several days or weeks. They will then provide a proposal summarizing the coverage available from the carriers, from which you can select the most appropriate. The advantage of dealing with an E&O program/carrier directly is that the purchase process is much quicker. The disadvantages are that the services of an agent to complete a detailed analysis will be unavailable, plus the policy may not be appropriate for unique or complex business risks.

Finally, would you prefer to buy your E&O insurance online, using a purchasing platform such as EOforLess.com or buy it in person or over the phone from another entity? The big advantage of the online option is that you can select, apply for, pay for, and print out your coverage within minutes of accessing the site.

For P&C agents who operate as solopreneurs or who own smaller, less complex agencies, buying E&O insurance online from an entity such as EOforLess.com often provides the ideal compromise between comprehensive coverage, affordability, and shopping speed and convenience.

Facts about E&O for Property & Casualty

Once agents understand the basics of E&O insurance and how to shop for it, it’s time to learn about the subtle differences between policies. Here are several key facts about E&O for Property & Casualty.

  • Watch for how coverage triggers are defined. Most E&O policies are issued on a claims made basis. This means coverage is available from the point at which the agent files a claim, not the time at which the loss originally occurred. However, some policies are issued on a claims made and reported basis. This means the agent must file a claim within a certain time period in order to qualify for protection. Make sure to nail this down before purchasing any E&O insurance policy.
  • Consider retroactive dates as opposed to full prior acts. In other words, as long as you maintain continuous coverage (i.e., with no lapses), insurers will consider claims that are made against you during the coverage period, even if the original event happened when you were insured by another insurer. But if you lapse your coverage, then no insurer will be responsible for claims that arose before and during the lapse. Result: you will be completely uninsured for past acts, which can destroy your business should you get sued in the future. However, if you purchase a policy with full prior acts coverage (available at a higher cost), then you will be covered for all prior acts.
  • For agents who might employ leased or temp employees or independent contractors, make sure your policy protects you against errors these individuals make while working for you.
  • Does the policy cover things like subpoena expenses or loss of earnings incurred because you’re focusing on the claim and not on your normal business duties?

In short, if you’re looking for the best E&O insurance for P&C agents, don’t take shortcuts. Spend enough time to fully understand:

  • The basics of E&O insurance.
  • The fundamentals of buying it.
  • The features that distinguish one policy from another.

If you do all of the above, you will be more likely to purchase the E&O insurance you truly need at a price you can afford. If you ever get sued, your family, business, and career will thank you for it.

Buy E&O Insurance today!