Coverage Needs for Errors and Omissions for Insurance Agents

By Angela Schroder, President of U.S. E&O Brokers / Senior VP of Insurance Agent Programs

Do you define “adequate” as price or coverage?
It appears that E&O shoppers and price seekers have decided they understand adequate insurance coverage until they read the policy.
Financial loss due to a professional liability claim can become a reality. If you are a new insurance agent, you may not know how this coverage works or how this coverage can affect you or your customer’s loss if you fail to place coverage on their behalf.
If you have been in business five to eight years, you have probably had a scare on a potential situation that concerned you. You called the insurance carrier’s claim rep or marketing rep that denied coverage, your E&O broker, other insurance agents and probably an attorney to get advice.

So let’s cut to the chase
Coverage on the topics below will save you your agency name and reputation in the community. The E&O policy is just not a price, but the only way you will be able to indemnify your name, your company and your family from financial harm. Errors happen to good customers and nobody wants a mistake to affect the financial livelihood of a customer.

PUNITIVE DAMAGES
Great: Coverage up to the Per Claim Limit where insurable Medium: Sublimit limited to $250,000 where insurable Poor: No Coverage

ABSOLUTE EXCLUSIONS
Carrier has no duty to defend or cover losses if these exclusions are on your policy.
■ No deceptive trade practices coverage/alleged false and deceptive advertising if alleged with an E&O claim.
■ No pollution coverage includes communicable disease exclusions.
■ No discrimination coverage. Alleged that you did not give terms, you did not deliver the same services.
■ No bodily injury coverage.
■ No property damage.
■ No coverage on licensed services that are prohibited on the policy form—these may be listed on endorsements or in the policy form.

Insolvency Coverage Exclusion
Poor:
Absolute exclusion – meaning no matter what carrier you place coverage with or their financial rating, your E&O carrier will not respond or defend you if that carrier cannot pay its claims. For admitted carriers, the customer may have help from the state guaranty fund, but if the payment is not enough or if you are accused of placing a risk with an undesirable carrier, you will be sued.
Low:
■ Placement with an insurer rated B or better by AM Best and Company at the time of placement would have coverage for amounts due to an insolvency and allegations of neglect to place customers with a solvent carrier.
Good:
■ Placement with an insurer “B+” or better by A.M. Best and Company
■ Guaranteed by a governmental body or bodies and/or operated by a governmental body or bodies (including assigned risk plans, joint underwriting associations, fair plans, or state insurance funds)
■ A county mutual reinsured by carriers rated no less that “B+”
■ Rated “A” or better by Demotech
Best:
■ No exclusions for carrier’s insolvency. All placements would be covered.
Please seek advice on risk retention groups, reinsurance placements, self-insured plans or other managed care plans, HMOs or PPOs.

Insurance Agent Services Definition
Low: Insurance Agent Services means insurance consulting services, insurance agent services, insurance broker services, and/or notary public services.
Better: Services rendered as an insurance agent, wholesaler, managing general agent, general agent, underwriting manager, program administrator, broker or surplus lines broker; services rendered as an insurance consultant, including, but not limited to, insurance consulting connected with employee benefit plans; premium finance services provided to your clients for insurance products placed through your agency; loss control, risk management or anti-fraud services rendered in connection with insurance placed through your agency; acting as a countersigning agent for out-of-state insurance agencies on policies issued within the state of domicile of your agency; acting as a notary public; acting as an expert witness providing testimony related to professional services; or insurance class instruction.
Best: Additional services in the definition include Cobra Administration, claims appraiser, claims adjuster and third party administrator. Other services should be determined with your broker if they fall outside of these activities.

Wrongful Acts
Actual or alleged act, error omission or breach of duty by an Insured in the rendering of or the failure to render professional services.
Personal injury by any insured in the rendering or failure to render professional services.
This sounds great, but watch out for these exclusions which change coverage to no coverage for the failure to place ancillary coverage. Who wants your policy to excludes claims for you failing to advise, or obtain bonds or other insurance on behalf of your client?

You should always look for policies that have these features if you are eligible.
■ Duty to Defend
■ Pay on Behalf
■ Defense Outside the Limits
■ First Dollar Defense
■ Retroactive Date Coverage if you are replacing coverage
■ Disciplinary Action Coverage for a proceeding before a state or federal licensing board for misconduct
■ Free Risk Management Advice
■ Definition of Insured which includes your firm, your officers, directors, members, employees, independent contractors and your spouse/legal domestic partner in the conduct of the named insured on your policy. Coverage for leased or temporary employees – and in the event you become incapacitated, your executor or a legal representative would be eligible for coverage.
■ Polices that offer bi-lateral extended reporting period options

E&O Typically Does Not Cover:
■ Employee Dishonesty
■ Wire Transfer Fraud
■ Fraud/Co-mingling of Funds
■ Cyber Liability – some E&O policies have sub-limits, shared limits, or separate limits
■ General Liability Coverage
■ Employment Practices
■ Workers Compensation
■ Directors & Officers Coverage