Do Travel Agents Need E&O Insurance?

Friends, today we chat on everything errors and omissions insurance (fondly known as E&O). E&O is also referred to as "professional liability" insurance and is a good fit for any business that provides services to clients. Especially those that charge a fee for said service. Enter, YOU, the fearless travel advisor.

We'll cover where to get it, what it covers, and managing expectations on what it can (and can’t) do for travel advisors. Settle in for an enticing read!

The Disclaimer (& What We'll Cover!)

You know I’m not an attorney or insurance expert (or I hope you do, my friends and I make rainbow cookies for heaven's sake!). I’d be the worst attorney/insurance person in the world so keep that in mind when reading this.

Here's some of the big life questions we cover on E&O:

1. What is E&O Insurance?
2. What Does E&O Insurance Cover?
3. What Doesn't E&O Insurance Cover?
4. Am I Covered by my Host Agency's E&O Policy? [+Video]
5. Do You Need an E&O Policy?
6. Who Provides Travel Agency Specific E&O Policies?
7. How Much Does Travel Agent E&O Insurance Cost?

What is E&O Insurance?

First things first. E&O insurance stands for Errors and Omissions insurance and it’s a common policy for travel agencies (and other businesses) to have. Why? Because it covers the errors and omissions you may make.

Errrrrrgh, or that’s what most travel agents think. Don’t let the name fool you. As it turns out, it doesn’t cover all errors, nor does it cover all omissions. In fact, I think looking at it as catastrophic insurance is a much smarter way of going about it. It’s for those big-time-doozy occasions when something goes horribly wrong.

If you’re thinking E&O insurance is going to cover the $500 mistake of booking the client in the wrong room, you’re going to be sorely disappointed. On the flip side, if someone sues you for an exorbitant amount, E&O comes in really handy.

So, What Does E&O Insurance Cover?

So as you have probably already gathered, blanket statements don’t work well when it comes to Errors and Omissions insurance but if I were to make a blanket statement, it would be a) dangerous and b) something like, E&O covers errors and omissions that do not benefit the traveler or the travel agent. E&O insurance also covers your legal defense.

In my opinion, the legal defense is probably the most attractive reason for an agency to have E&O insurance. No matter how frivolous the lawsuit, your legal defense will be covered up to your policy limit, until you were proven guilty. Some caveats where your legal defenses would not be covered: sexual misconduct, intentional acts, and criminal acts.

My best advice here is to read the policies carefully, they're not all the same. If your agency works with specific groups of travelers or is in a specific niche, make sure the travel you’re booking is covered.

What Doesn’t E&O Insurance Cover?

Many agents would assume their E&O policy covers things like debit memos from the airlines or if you told a client the wrong info for travel insurance. While policies vary, chances are those situations aren’t covered. In fact, you should be aware many errors common to travel agencies aren’t covered. Sad face, I know.

However, let’s not forget the big picture—insurance companies are in this to make money. Abuses to the insurance system hurt profits and they want to plug those leaks.

Enter the term, moral hazard. Moral hazards are not covered.

In other words, if your error/omission had no negative consequences beyond paying the deductible, and you/your client benefited from the error/omission, that’s a moral hazard. And insurance companies don’t pay for those claims.

Sample Situation #1: 

An agency quotes a client $4,000 for a trip that really costs $5,000. (Oops!)

The verdict: Your client is happy because they saved $1,000. You’re happy because the client booked. BUT the insurance companies will call that a moral hazard, accident or not, and will not foot the bill.

Sample Situation #2: 

Your clients are going on a cruise out of Thailand. You let them know they don’t need any special visas, etc. Except, the flight is delayed and they miss the cruise and have to catch up with it at the next port, Vietnam, which requires a visa. Whoops. They end up missing ½ their cruise while things are straightened out and are suing you for the cost of their trip.

The verdict: Your client is not happy and did not benefit. You did not benefit and could not predict the flight delay. The insurance companies would probably cover this since it doesn’t fall under moral hazard.

The Whole “Using the Host Agency’s E&O Insurance” Thing

This section is extra exciting because it comes with a video trailer! I addressed using a host's E&O (and what to ask them) on a Friday 15 episode. Give a listen to what she has to say about using a hosts E&O:

Some host agencies allow their independent contractors to be covered under their E&O policy. Others require that the independent contractor obtain their own. There are no right/wrong, just different ways of doing things.

But, a few tips if you are using your host’s policy: I worked at a host agency that included E&O insurance in the program costs and I was always concerned with how few agents asked for details on our policy. I mean, for all they knew, our deductible could have been $20,000 and the policy only covered where their clients were trampled by sloths!

Don’t forget to ask the host agency:

Here's a few questions to ask the host agency if you decide to use their E&O insurance policy:

1. What is the deductible?
2. What's the policy amount?
3. How many agents/agencies do the host's policy cover?
4. Could they send over a copy of the policy for you to look at? (Make sure it says it covers independent contractors.)
5. How much will the policy cover total, for all claims? (Most hosts have a policy with a $1M or $2M aggregate limit.)
6. What’s the payout limit per claim?

These questions can help you understand the risk of sharing a policy. Now, I do want to say that E&O claims are very rare—since they started hosting, most host agencies I know are still in the single digits when it comes to claims. Not having to purchase your own E&O insurance can save you a chunk of change, but it does mean the risk (even though small) is increased because it is a shared policy.

Do Travel Agents Need an E&O Policy?

Technically, no. You’re not required to have an E&O policy by law in the United States. It’s a choice you get to make. Everyone has different levels of risk they’re comfortable with. You know your situation best—do what you need to do so you can lose sleep over something else (like getting trampled by adorable sloths).

And for you Canadian readers, certain provinces have legislation requiring an agency carries E&O insurance. Although after 45 minutes of searching for that info, I've concluded that the government is insistent on avoiding specifics on which provinces those are. They just tell you that certain provinces require it. (Gosh, thanks.)

It’s worth mentioning that while it may not be required by law everywhere, E&O insurance may be required in other situations: For instance, members of the Association of Canadian Travel Agents (ACTA) that live in non-regulated provinces are required to have E&O insurance. Some host agencies also require proof of E&O insurance before an IC/agency can join.

Which E&O Policies are (Specifically) for Travel Agencies?

Technically, you can get them from most insurance providers. You could call up whatever company you have your homeowners or car insurance with and ask them to add an E&O insurance to your fun grouping of insurances.

There are advantages to having all your policies with one insurance agent (if you were to get your insurance policy through the agency that does your car/homeowners/renters insurance), and there are advantages to working with someone that understands the nuances of the travel industry.

Here are a few of the popular carriers that have travel agent specific E&O policies(let me know if I missed any!):

1. 360 Coverage Pros (HAR's recommended provider)
2. ACTA Protect by Brokerlink (Canada)
3. Aon Group
4. Berkshire Hathaway

And here’s an old FB thread of agents sharing who they use for their E&O insurance. This thread includes a few agents who use brokers that don't specifically mention working with travel agencies but still report having had good experiences with the company. (While the thread is well-seasoned, the agencies listed still do provide E&O coverage.)

How Much Does Travel Agent E&O Insurance Cost?

The cost of an Errors & Omissions policy is based on the total agency sales, so you’ll have to ask around to get specific prices. Also, make sure to ask your consortia, travel agent associations, and/or host agencies about any preferred supplier agreements with E&O companies—that could save you some moola!

Just Can’t Get Enough?

I know. Who doesn’t love a good legal/insurance article? Legal jargon and complications are the perfect way to wind down and relax before bed.

For more delightful reads, check out these articles:

Protect Your Agency: Travel Waivers

How To Protect Your Agency During Turbulent Times

Travel Industry Lawyers

The Final Takeaway

E&O insurance can be confusing and travel agents should understand it's not a silver bullet for fixing mistakes. Like any business decision, it's about knowing and weighing out the risk and ultimately doing what you're comfortable with. Would love to hear the route your agency takes in the comments section!

Editor's Note: This was originally published in 2013 and updated and republished at date listed above.