Insurance agents and Managing General Agents (MGAs) can be held legally liable for negligence, errors, or omissions committed during their professional duties. As licensed professionals, they are expected to exercise reasonable care and competence when advising clients, recommending coverage, or handling policy-related matters.
If an insurance agent or MGA fails to meet this standard of care and a client suffers financial loss as a result, the agent may be sued for professional negligence. Common examples of negligence claims include:
Failure to procure appropriate insurance coverage
Agents have a duty to understand their clients' needs and recommend suitable insurance products. If an agent fails to secure adequate coverage and the client experiences an uncovered loss, the agent may be held responsible.
Misrepresentation or failure to disclose information
Providing incorrect information or omitting key policy details—such as exclusions, limits, or conditions—can lead to misunderstandings and coverage gaps. Agents may be liable if the client suffers a loss due to such misrepresentation or nondisclosure.
Errors in policy documentation or administrative processes
Mistakes in issuing policies, processing endorsements, or managing renewals can cause significant problems. If these administrative errors result in a denial of coverage or financial harm, the agent or MGA may face a negligence claim.
Breach of fiduciary duty
Insurance professionals are expected to act in the best interest of their clients. If an agent prioritizes their own financial gain or fails to disclose conflicts of interest, they may breach their fiduciary duty and be held liable for resulting damages.
To help protect against such risks, insurance agents and MGAs are typically required to carry Professional Liability Insurance. This coverage helps pay for legal defense costs and settlements if they are sued over mistakes made in the course of their professional services.
Frequently Asked Questions
Can insurance agents be personally sued for mistakes?
Yes. If a client suffers financial harm due to an agent's negligence, the agent may be personally named in a lawsuit, especially if they lack adequate professional liability coverage.
What is the difference between an agent and an MGA?
An insurance agent typically sells policies directly to clients, while an MGA has the authority to underwrite, bind coverage, and manage policies on behalf of insurers.
Does professional liability insurance cover intentional acts?
No. Professional liability insurance generally excludes coverage for intentional wrongdoing, fraud, or criminal acts.
Why is professional liability insurance important for MGAs?
Due to their expanded responsibilities, MGAs face increased exposure to errors and omissions claims. This insurance helps protect them from financial and legal risks associated with their work.
Is professional liability coverage required by law?
Requirements vary by state and by insurer. In many cases, insurance carriers or state departments may mandate coverage before authorizing an agent or MGA to operate.
Still have questions? Talk to a local insurance expert.