Glossary · Insurance agency commissions
Errors and omissions insurance
Errors and omissions (E&O) insurance is professional liability coverage that protects an agency when a client claims a loss caused by the agency’s mistake, such as a missed renewal, wrong coverage or a late submission. It covers the agency’s liability to clients; it does not cover commission the agency fails to collect from carriers.
What it means
The NAIC’s glossary of insurance terms describes errors and omissions liability as coverage for a professional insured against loss arising “from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.” For insurance agencies it is the policy behind a client’s claim that the agency should have placed or kept coverage.
How it works: E&O is usually written on a claims-made basis, with a deductible and limits per claim and in aggregate. Some carriers require an appointed agency to carry it, and some states set rules for certain licenses; the requirements are in your carrier agreements and your state’s rules.
How it shows on a commission statement
E&O premium is not usually on a carrier commission statement. Where an agency gets E&O through a network or aggregator program, the cost may be billed against commission, appearing as a deduction on the network’s statement. Statements matter for E&O in another way: a policy that drops off a statement unexpectedly can be the first sign of a lapse a client did not know about.
Example
| Policy | Statement line | Commission | Why it matters |
|---|---|---|---|
| EX-46010 | Renewal paid | 310.00 | nothing to do |
| EX-46022 | Cancellation, non-payment | −120.00 | client aware? |
| EX-46035 | Missing at renewal | 0.00 | renewed or lapsed? |
The two highlighted lines are commission questions, and also coverage questions: a client who believes they are insured may not be. Following up on them protects both the commission and the client.
Commonly confused
- E&O covers liability to clients; it does not cover commission chargebacks or short-paid commission. See commission chargeback.
- A fidelity bond or crime policy covers theft by employees; E&O covers professional mistakes.
- The agent of record is the agency responsible for a policy, and the one a client would bring an E&O claim against. See agent of record.
Common mistakes to check
- Expecting E&O to recover commission a carrier underpaid; that is a reconciliation and dispute matter.
- Ignoring statement lines that signal a client’s policy cancelled or failed to renew.
- Letting a claims-made E&O policy lapse without tail coverage when changing carriers or selling the agency.
Questions
Do insurance agents need E&O insurance?
Many carriers require it for appointment, and some states have rules for certain licenses. Check your carrier agreements and your state insurance department rather than assuming.
Does E&O cover commission disputes with carriers?
No. E&O responds to claims by clients for losses caused by the agency’s errors. Commission owed by a carrier is a contract matter between you and the carrier.
Sources
- National Association of Insurance Commissioners, Glossary of Insurance Terms, entry for errors and omissions liability (professional liability other than medical). Retrieved October 12, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: commission reconciliation checklist.