Business owners might make mistakes at any time, and not realize it until years later. Unfortunately, the fact that might awaken them to this matter could be a lawsuit from a dissatisfied customer. If the person has errors & omissions insurance, then they might have a route to fight and settle the claim. However, what many insured parties don’t realize is that not all liability insurance applies to all claims at all times. Clearly explain the differences to your clients when they apply for coverage.
There are two main types of coverage—claims-made and occurrence E&O policies. Each works differently, and it’s important that your insurance clients understand this difference.
Errors & Omissions Insurance
An errors & omissions policy applies generally to those in professional services, such as law, medicine or finance. However, it has its applications in nearly any business. It covers professional mistakes that lead to financial or physical harm to another party. For example, a doctor who makes errors in treatment might get sued for malpractice. The related legal costs and settlements are commonly covered by malpractice insurance, which is a type of E&O policy.
However, where differences in policies might arise is whether a client’s existing policy can cover a claim. Sometimes, they might have to look to an old policy for coverage, and that might make a difference in whether they can actually qualify for coverage at all.
A claims-made policy covers you only as long as it remains in force and active. Therefore, that means the insured can’t cancel this policy and expect it to provide coverage later. The policy must have been active when the incident occurred, and it must still be active when an eventual claim arises.
Should a client want to make changes to their coverage, you might advise them to consider buying what’s called tail coverage for the existing claims-made policy. The tail can ensure that, even if the initial policy is no longer active, the client can refer back to it should a claim arise.
Even though it is typically more expensive than a claims-made policy, occurrence coverage eliminates the need for tail policies. Occurrence policies cover events that occurred during their active terms, but even once the term expires, the policy is still good.
So, if a policy was active from January 1, 2018 – December 31, 2018, and a mistake occurred on any given date between those, the insured can file a claim on the policy. Even though a claim might not arise until 2019 or 2020, they can still file against your 2018 policy. Therefore, it’s important to tell clients that this policy can protect them in perhaps more-efficient ways if they plan to remain in business long-term and can afford the additional cost.
Also Read: Determining Your E&O Insurance Requirements