E&O Insurance: A Guide for the Perplexed

This is the first in a two-part series on E&O insurance

If you’ve ever filed a claim against your errors and omissions (E&O) insurance and been amazed when they turned you down, you surely are not alone. The industry is complicated; the definitions are not what most people expect, and the errors covered are not necessarily the ones travel agents usually make.

Still, when the very worst kind of catastrophe happens, when your agency is facing thousands of dollars in legal fees, an E&O insurance policy can save your business.

The basics
E&O insurance protects a travel agent against “many common mistakes and mishaps, and certainly lawsuits that can occur,” said Dan Francis, director of travel industry sales at Berkshire Hathaway Travel Protection, which got into the business in 2006.

“Some claims are tens of thousands of dollars, even into the hundreds of thousands,” Francis said.

Common claims involve passport and visa misinformation – for instance, when an agent tells a client these are not needed when they really are. Also common are claims involving agent mistakes like using the wrong airport code on an airline ticket or booking a flight on the wrong dates, he said.

In most cases these types of claims are covered, according to Paula Cartagena, an account executive with insurance provider Aon Affinity Berkely Travel.

What’s not covered
But E&O insurance will not save agents from significant errors of their own making.

According to Cartagena, the most frequent errors are pricing disputes, misquotes of airline prices, for example, or cancellation penalties that were not explained. Those kinds of monetary damages, where there is a cost but no one is injured, are not usually covered.

Travel industry attorney Mark Pestronk said E&O insurance actually “doesn’t cover most things travel agents think it covers or most things that can go wrong.”

Small & large claims
“If you give negligent advice and that results in an injury it will cover you, but that happens once in a lifetime of every 100 travel agents,” Pestronk said.

And the costs involved with claims over smaller issues, such as booking the customer on the wrong day, are apt to be small. So when you factor in insurance premiums, which start at $600 a year, but can be much more for a large agency, “even if you get sued every 10 years for $10,000, then it’s kind of a wash,” Pestronk said.

The big insurance payouts often come from incidents that are not errors at all. Even if agents don’t do anything wrong they can be held liable and sued when a client falls on a cruise ship, for example, or when a hiking trip or bus accident ends in a client being killed or badly injured.

In such cases, “anyone that’s involved in the booking can be held liable,” said Francis of Berkshire Hathaway.

Big lawsuits
Travel agents don’t get sued for major events very often, said litigation attorney Rod Gould, of Rubin, Hay & Gould, P.C., in Framingham, Mass.

But it is important for agents to have $1 million or so in insurance for that “horrific event, because a travel agent can be sued anywhere, even if the contract says a client cannot sue and has to arbitrate,” Gould said.

Claims that involve bodily injury when things go wrong “can be very large,” said Maureen Kaye, senior vice president of Aon Affinity Berkely Travel, a provider of insurance benefits and services to the travel industry.

Gould’s law firm was involved in a suit brought by a woman who left a marked path in Machu Picchu to wander on her own, then fell and was paralyzed. The legal fees “were close to six figures,” Gould said.

Costly fees
In another case, a travel agent booked a couple of friends headed to Baja, Calif., for a fishing trip on an Aeromexico flight. When the plane was hit by a private jet flying illegally in the airspace, the family sued the travel agency.

The family claimed that the travel agent failed to tell them they should buy additional life insurance because the airspace around Los Angeles International Airport is so dangerous.

“You’re not going to lose a case like that, but it can easily run up $10,000 to $15,000 in legal fees,” Gould said.

Do the right thing
Recently Kaye received a call from a travel agent customer whose client was at an Italian resort the agent had described as family-friendly.

Two boisterous children annoyed other guests, who complained to the front desk; now the client was feeling uncomfortable and demanding the agent move them to another resort and threatening to sue.

The agent did exactly the right thing, Kaye said: She called to give Aon a heads-up about a possible claim, and then she turned her complete attention to helping her client.

“I told her that it sounds like it should be covered, so right now go ahead and make your business decisions based on what’s right for your client,” Kaye said.