Misrepresentation E&O Claims Explained: Key Insights for Brokers

Misrepresentation E&O claims arise when an insurance agent makes a false statement, or fails to disclose a material fact, that causes harm to either the client or the carrier. The misrepresentation does not need to be intentional. Negligent misrepresentation, stating something false without checking whether it is accurate, creates the same E&O exposure as deliberate fraud.

According to Swiss Re's 2024 E&O Claims Analysis, misrepresentation claims account for approximately 18% of agency E&O claims by dollar value. They represent a smaller share by count, but the average severity is high because misrepresentation often results in a total coverage denial rather than a partial coverage gap.

This explainer covers both directions of misrepresentation, the legal standard agents are held to, the most common scenarios that generate claims, and the documentation practices that provide the strongest defense.

Key Takeaways

• Swiss Re 2024 E&O Claims Analysis: misrepresentation accounts for approximately 18% of agency E&O claims by dollar value, with above-average severity per claim.
• Misrepresentation runs in two directions: agents can misrepresent coverage to clients, and agents can misrepresent risk information to carriers on applications.
• Negligent misrepresentation, saying something inaccurate without verifying it, carries the same E&O liability as intentional false statements in most jurisdictions.
• When a carrier rescinds a policy after discovering material misrepresentation on the application, the client's entire coverage is voided, often retroactively, and the agent is liable for the resulting gap.
• Written coverage summaries reviewed with clients at policy inception and renewal are the primary defense against client-facing misrepresentation claims.
• Application review sessions, where the agent goes through every question with the client and documents the client's answers, are the primary defense against carrier-facing misrepresentation claims.

The Two Directions of Misrepresentation

Misrepresentation in the agency context operates in two distinct directions, each with different consequences and different defenses.

Direction 1: Agent Misrepresents Coverage to the Client

The first direction is the more commonly discussed one. An agent tells a client they have coverage that they do not have, overstates the scope of coverage, or fails to disclose exclusions that materially limit the policy's value.

When this type of misrepresentation occurs and the client suffers a loss that would have been covered if the agent's representation had been accurate, the client files an E&O claim based on what the agent said rather than what the policy said. Courts in most jurisdictions have held agents to their representations even when those representations conflict with the policy language. The rationale is that the client relied on the agent's professional advice, and the agent had an obligation to make accurate statements.

The most common form of client-facing misrepresentation is the over-broad reassurance. An agent says "you're fully covered" or "that's covered under your policy" without reviewing the actual policy language. If the loss turns out to be excluded, the agent's casual statement becomes evidence of misrepresentation.

Direction 2: Agent Misrepresents Risk Information to the Carrier

The second direction is less frequently discussed but equally dangerous. When an agent submits an application to a carrier, the agent has an obligation to provide accurate information about the risk. Material misrepresentation on an application, whether intentional or due to agent error, can give the carrier grounds to rescind the policy.

If a carrier rescinds a policy after a loss is reported, the client has no coverage at all, not just a gap in coverage. The rescission is typically retroactive, meaning the carrier treats the policy as though it never existed and returns the premium. The client then turns to the agent, whose error or omission on the application caused the rescission.

Per Utica National 2024 E&O claims data, application-related misrepresentation claims carry an average value of $225,000, which is higher than most other E&O claim categories, because the client has no coverage fallback once rescission occurs.

Common Misrepresentation Scenarios

Scenario 1: "You're Fully Covered" Without Reviewing the Policy

An agent assures a client during a renewal call that their product liability claim would be covered under their general liability policy. The client does not pursue additional coverage and does not review the policy independently. When a product liability claim arises, the GL carrier denies it under the professional services exclusion or a specific product exclusion.

The client files an E&O claim against the agent based on the verbal assurance. The agent has no documentation showing the policy was reviewed before the assurance was given. The agent cannot rebut the client's testimony about what was said in the call.

This scenario is the most common trigger for client-facing misrepresentation claims. The agent's belief that the coverage existed does not matter if the belief was not based on a review of the actual policy language.

Scenario 2: Prior Claims Not Disclosed on Application

A commercial liability application asks whether the insured has had any claims or losses in the past five years. The client mentions a small claim in passing during the intake conversation. The agent does not record it formally and does not include it on the application.

The carrier issues the policy. A large claim is filed. The carrier investigates and discovers the prior claim that was not disclosed. The carrier rescinds the policy, citing material misrepresentation on the application. The client loses all coverage for the current claim.

The agent is now liable for failing to verify the application accurately reflected the client's loss history. Even if the client did not formally disclose the prior claim, the agent who heard about it during intake had an obligation to include it on the application or to ask explicitly.

Scenario 3: Property Replacement Cost Value Misrepresented

An agent places a commercial property policy with a replacement cost value that understates the actual cost to rebuild the insured building. The agent relies on the client's estimate rather than an independent appraisal or a construction cost calculator. When a total loss occurs, the insurance payout is significantly less than the actual rebuild cost.

This is technically a misrepresentation of the insured value on the application, and it has two consequences. First, the client receives less money than they need to rebuild. Second, if the carrier can show the undervaluation was material, they may apply a coinsurance penalty or contest the claim.

The agent's defense in this scenario requires showing that the valuation was based on reasonable inquiry, that the client confirmed the value, and that the agent recommended an independent appraisal if one was available. Without documentation of these steps, the agent faces exposure for the shortfall.

Scenario 4: Auto Fleet Described as Covered Under GL

An agent tells a client that their auto fleet is covered under their commercial general liability policy. The client does not purchase commercial auto. When an accident involving a fleet vehicle results in a $350,000 judgment, the GL carrier denies the claim because auto liability is excluded from GL coverage. The client files an E&O claim against the agent for the full judgment.

This scenario arises when agents do not review the GL policy's auto exclusion before making statements about coverage. GL policies uniformly exclude auto liability. Any agent who represents otherwise, even casually, has made a material misrepresentation about the policy.

The Legal Standard: Negligent Misrepresentation Is Enough

Agents frequently assume that an E&O claim for misrepresentation requires proof that the agent intended to deceive the client or carrier. This assumption is incorrect.

Negligent misrepresentation is a recognized legal theory in every jurisdiction. An agent is liable for negligent misrepresentation when they make a false statement without exercising reasonable care to verify its accuracy, the client or carrier relies on the statement, and harm results from that reliance.

The practical implication is that an agent who says "I thought it was covered" does not have a defense. The agent had an obligation to verify before making the statement. If they did not verify, they are liable for the consequences of the inaccurate statement regardless of their intent.

IIABA 2025 E&O risk guidance identifies verbal assurances of coverage as the single highest-risk agent behavior in the misrepresentation category. The guidance recommends that agents adopt a policy of never confirming coverage verbally without first reviewing the relevant policy language, and of following every coverage discussion with a written summary that the client can reference independently.

How Carrier Rescission Works and Why It Creates Maximum Exposure

When a carrier discovers a material misrepresentation on an application, they have the option to rescind the policy. Rescission is different from cancellation. Cancellation terminates the policy going forward. Rescission voids the policy retroactively, as though it was never issued.

The consequences of rescission for the client are severe. Any claim that was filed under the policy may be reopened and denied. Any premium paid is typically returned. The client is left with no coverage for the period the policy was supposed to be in force.

For the agent, rescission claims are particularly dangerous because the client's damages are typically the full value of the denied claim, not a partial gap. If the rescinded policy was supposed to cover a $400,000 loss and no other coverage exists, the agent faces exposure for the entire $400,000 plus defense costs.

Per Utica National 2024, application-related misrepresentation claims that result in rescission carry an average indemnity value of $225,000, compared to an average of $145,000 for client-facing misrepresentation claims that result in a coverage denial.

Misrepresentation Scenarios: Direction, Average Claim Value, and Documentation Defense

Sources: Swiss Re 2024 E&O Claims Analysis; Utica National 2024 E&O Claims Data.

Defense Strategies for Misrepresentation Claims

Written Coverage Summaries

The most effective defense against client-facing misrepresentation claims is a written coverage summary delivered at policy inception and again at renewal. The summary should describe what the policy covers in plain language, identify the major exclusions that apply to the client's operations, and specify any coverage the client requested but did not purchase.

When the client has a written summary in front of them, the scope of their coverage is documented independently of what the agent may have said verbally. If the client later claims the agent said something different, the written summary is contemporaneous evidence of what was actually communicated.

IIABA 2025 recommends that written coverage summaries be reviewed with the client in a documented meeting or call, not just mailed or emailed without confirmation. A brief email from the client acknowledging receipt of the summary adds additional defensive value.

Application Review Sessions

The most effective defense against carrier-facing misrepresentation claims is a documented application review session. The agent goes through every material question on the application with the client, records the client's answers, and has the client sign or electronically confirm the completed application before submission.

This process does two things. First, it catches errors before they reach the carrier. Second, if a question is answered inaccurately because the client provided incorrect information, the agent has documentation showing the information came from the client and was reviewed with them.

Application review sessions add 20 to 30 minutes per commercial account at inception. They significantly reduce the risk of rescission-triggering misrepresentations, and they shift the responsibility for inaccurate information to the client when the client provided that information in a documented session.

Coverage Declination Forms

When a client declines a coverage recommendation, the declination should be documented in a signed form that specifies what was recommended, what the exposure is, and that the client chose not to purchase the recommended coverage.

This form protects the agent against future claims that the agent never recommended the coverage. It also prevents the scenario where a client claims the agent told them they did not need a particular coverage, which is a form of misrepresentation claim based on advice rather than assurance.

The Difference Between Misrepresentation and Failure to Procure

These two categories are sometimes confused because both can involve a client being told they have coverage they do not have. The distinction is in where the problem originates.

In a failure-to-procure claim, the problem is that coverage was requested but never placed. The agent's statement that coverage was in place may be incorrect, but the root issue is the absent policy.

In a misrepresentation claim, coverage may or may not exist. The problem is what the agent said about the coverage, or what the agent said on the application about the risk. The agent's statement is the root issue, independent of whether a policy was ever placed.

A client whose coverage was never placed and who was told by the agent that coverage was in force has both a failure-to-procure claim and a misrepresentation claim. Courts often allow both theories to proceed simultaneously, which increases the agent's exposure and the complexity of the defense.

Frequently Asked Questions

What is a misrepresentation E&O claim against an insurance agent?

A misrepresentation E&O claim is filed when an insurance agent makes a false statement or fails to disclose a material fact, and that misrepresentation causes financial harm. The misrepresentation can be directed at the client, such as overstating the scope of coverage or failing to disclose an exclusion, or it can be directed at the carrier, such as submitting inaccurate information on an application. Per Swiss Re's 2024 E&O Claims Analysis, misrepresentation accounts for approximately 18% of agency E&O claims by dollar value, with above-average severity because misrepresentation often results in total coverage denial rather than a partial gap.

Can an agent face an E&O claim for an honest mistake on a misrepresentation?

Yes. Negligent misrepresentation, making a false statement without exercising reasonable care to verify its accuracy, carries the same legal liability as intentional misrepresentation in most jurisdictions. An agent who tells a client "you're covered for that" without reviewing the actual policy language has made a negligent misrepresentation if the statement turns out to be false. The agent's good faith belief that the statement was accurate is not a defense if the agent did not take reasonable steps to verify the statement before making it. This is why IIABA 2025 strongly recommends against verbal coverage assurances that are not preceded by a review of the relevant policy language.

What happens if an agent submits inaccurate information on a carrier application?

If the inaccurate information is material, meaning the carrier would have charged a different premium or declined the risk if it had known the accurate information, the carrier may rescind the policy retroactively. Rescission voids the policy as though it was never issued. Any claims filed under the policy can be reopened and denied. Any premium paid is typically returned. The client is left with no coverage for the entire policy period, and the agent faces liability for the full value of any claims that were denied as a result. Per Utica National 2024 E&O claims data, application-related misrepresentation claims that result in rescission carry an average indemnity value of $225,000.

How does misrepresentation of coverage to a client create E&O liability?

When an agent tells a client they have coverage that the policy does not actually provide, and the client relies on that statement by not purchasing alternative coverage or not taking other protective steps, the agent has created a misrepresentation-based E&O liability. Courts evaluate whether the client reasonably relied on the agent's statement and whether the harm was a foreseeable consequence of the reliance. If the client could not be expected to independently verify the accuracy of a professional's coverage statement, courts generally find that reliance was reasonable. The agent's defense requires showing that the statement was accurate at the time it was made, or that the client had access to the policy language and chose not to review it independently.

What documentation protects an agent against misrepresentation E&O claims?

Three documents provide the strongest protection. First, written coverage summaries delivered at policy inception and renewal, which document what was communicated to the client about the scope of coverage and its exclusions. Second, documented application review sessions with client sign-off, which show that application information was provided by the client and confirmed by them before submission. Third, coverage declination forms signed by the client whenever the client declines a coverage recommendation, which prevent claims that the agent never recommended the coverage. IIABA 2025 recommends all three documents as standard components of every commercial account file.

What is the difference between misrepresentation and failure to procure as E&O claim categories?

Failure to procure claims arise when coverage was requested but never placed. The root issue is an absent policy. Misrepresentation claims arise from what the agent said, either to the client about coverage or to the carrier about the risk. The root issue is a false or inaccurate statement. A client whose coverage was never placed and who was told coverage was in force may have both types of claims simultaneously. In a failure-to-procure claim, the primary defense involves documentation of the coverage request and the agent's response. In a misrepresentation claim, the primary defense involves documentation of what was actually communicated and what steps the agent took to verify accuracy before making any statements.

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Written by Javier Sanz, Founder of BrokerageAudit. Last updated April 2026.