What is important about E & O Coverage?
Claims Made Policies and Claims Made and Reported Policies are used for Professional Liability Coverage. Stand Alone E & O Policies will include coverage for specified services.
provision in claims made policies is the Retroactive Date
which defines the date the business was first insured for coverage for professional services. This date defines coverage if a claim is made against you or your business. For example, if your first policy began on January 1, 2012, and a claim is served on your company for acts that occurred before January 1, 2012, the claim will be denied because you or your company had no coverage in place at that time. Only claims for wrongful acts occurring after the retroactive date will be covered. Only claims resulting from wrongful acts occurring after the retroactive date will be considered for coverage. Gaps in coverage, limit changes, mergers and/or acquisitions can also affect/amend the retroactive date. Why did we just spend two paragraphs on this definition? The retroactive date is one of the most important features of your E&O policy.
Any changes to your retroactive date can change your coverage. Please call your broker to discuss any questions or concerns regarding this very important coverage.
Coverage Features of Policies can include:
Duty to Defend
- Pay on behalf wording
- Defense Costs/Claims Expenses may be inside the limits of liability or outside the limit of liability
- Deductible vs. Retention policies
- Coverage for Independent Contractors (commission only)
- Regulatory Action Proceedings/Disciplinary Proceedings
- Personal Injury (may be defined)
- Punitive Damage Coverage if insurable
- Subpoena Assistance and Loss of Earnings while attending a hearing at the request of your carrier
- Media Liability Sub-Limits or Separate Limits
- Bi-Lateral Extended Reporting Period Provisions
- Risk Management Resources and Discounts
- Excess Limits Available
BASICS OF PROFESSIONAL LIABILITY
E & O Applications contain the information the Underwriter requires to quote coverage for the NAMED INSURED. The named insured should be defined by making sure all entities/dba’s are listed on an organizational chart showing all owners of the entity. Coverage is defined “Named Insured” meaning the persons and entities designated in the Declarations or listed by endorsement.
The definition below is an example of the Named Insured. An example excerpt from Wesco Insurance Company/ Policy form PL990300 reads:
E. “Insured” means:
1. if the Named Insured is an individual, the Named Insured and their spouse or legal domestic partner, and former spouse or legal domestic partner are Insureds, but only with respect to the conduct of a business of which the Named Insured is the sole owner;
2. if the Named Insured is a partnership, the Named Insured, their partners and their spouses or legal domestic partners, and former partners and their spouses or legal domestic partners, are Insureds, but only with respect to the conduct of the Named Insured’s business;
3. if the Named Insured is a limited liability company, the Named Insured is an Insured. The Named Insured’s members and former members are also Insureds, but only with respect to the conduct of the Named Insured’s business. The Named Insured’s managers and former managers are Insureds, but only with respect to their duties as the Named Insured’s managers with respect to the conduct of the Named Insured’s business;
4. if the Named Insured is an organization other than a partnership or limited liability company, the Named Insured is an Insured. The Named Insured’s officers, directors, and former officers and directors are Insureds, but only with respect to their duties as the Named Insured’s officers and directors with respect to the conduct of the Named Insured’s business. The Named Insured’s stockholders and former stockholders are also Insureds, but only with respect to conduct for the Named Insured’s business;
5. any employees and former employees, independent contractors, leased or temporary employees, but only for acts within the scope of their duties on behalf of the Named Insured and while performing duties related to the performance of the Named Insured’s professional services;
6. the estate, heirs, executors, administrators, assigns and legal representatives of an Insured in the event of such Insured’s death, incapacity, insolvency or bankruptcy, but only to the extent that such Insured would have been provided coverage under this policy.
7. any insurance agency newly acquired or formed by the Named Insured during the policy period, in which the Named Insured owns or maintains a majority interest, but only if there is no other coverage available:
a. coverage under this provision is provided only until the 90th day after the acquisition or formation of such agency by the Named Insured or at the end of this policy period, whichever is earlier;
b. coverage does not apply to claims arising from acts, errors or omissions in the performance of professional services committed before the acquisition or formation of the agency by the Named Insured; and
c. written notice of such acquisition or formation is provided to the Company.
Coverage is also defined by the Professional Services the Named Insured is providing. So the accuracy in describing professional services means an accurate level of coverage (if available).
Policy Conditions are important and describe conditions and obligations of the Named Insured to report incidents or claims to the carrier during the policy period. All written or verbal communication against the Named Insured during the policy period which might reasonably be expected to the basis of a claim should be reported to the carrier. Notice of claims is very important and each firm needs to have a reporting method to officers or directors of the firm. Any act, error, or omission that is not reported timely, by lead to a denial of coverage.
Policy Conditions also define coverage if there is other insurance in place that may apply to the same claim. Wesco Insurance Company /Policy Form PL990300 states: If there is other insurance that applies to the claim, this insurance shall be excess over such other valid and collectible insurance whether such insurance is stated to be primary, contributory, excess, contingent or otherwise. This does not apply to insurance that is purchased by the Named Insured specifically to apply in excess of this policy.
Conditions also include common sense. You may not assign your policy to someone else without the written consent of the Company. If you are selling, buying or merging with another entity, notice to your carrier is often specified in the policy form.
Exclusions of a professional liability policy include, fraud, criminal or malicious acts by the Named Insured, however, the Carrier may provide an Insured with a defense of any claim based on or arising out of any dishonest, fraudulent, or malicious act or omission by an Insured until it has been determined by adjudication, including including regulatory ruling against or admission by such Insured.
Exclusions for services not endorsed on the policy would not have coverage. Such exclusions can include any promises or guarantees relating to market fluctuations, interest rates, dividends, or promise of future market value. It is always important to read the exclusions of your policy. If you are providing licensed services and your license lapses, or you are not licensed correctly, you may jeopardize your E & O policy.
Claims Made and Claims Made and Reported Policies have other special features as well:
All policies may have different policy wording, different terms or different extensions of coverage, so be careful to read definitions and coverage options. The information below is an example of coverage offered by just one carrier.
Extended Reporting Period (ERP) is a special feature:
ERP is a period of time after a claims-made policy has expired during which a claim may be made and coverage triggered as if the claim had been made during the policy period.
Sometimes a Basic ERP or Automatic ERP or Grace Period is defined is a period of time to report a claim at no additional cost to the Named Insured after the policy is cancelled or renewed.
Optional Coverage is available for purchase for a period of time if either the insured or the insurer decides to cancel or nonrenew the policy. Each E & O policy can offer different terms or conditions
Wesco Insurance Company/ Policy Form PL990300 states:
“Extended Reporting Period” means the period of time after the end of the policy period for reporting claims first made and reported during the Extended Reporting Period by reason of an act, error or omission that occurred prior to the end of the policy period and is otherwise covered by this policy. The Limits of Liability for any Extended Reporting Period shall be part of, and not in addition to any remaining Limits of Liability as stated in the Declarations of this policy.
A. Automatic Extended Reporting Period:
In the event of cancellation or non-renewal of this policy by either the Named Insured or the Company, an automatic thirty (30) day Extended Reporting Period will be provided to the Named Insured at no additional cost if the Named Insured has not obtained another insurance agents and brokers errors and omissions policy within thirty (30) days of the cancellation or non-renewal of this policy.
B. Optional Extended Reporting Period:
In the event of cancellation or non-renewal of this policy by either the Named Insured or the Company, then the Named Insured upon payment of an additional premium as set forth below shall have the right to an Extended Reporting Period for the specific period of time set forth in an endorsement to be issued by the Company. This right shall terminate, however, unless written notice of this election together with the additional premium is received by the Company or its authorized agent/broker from the Named Insured within thirty (30) days after the effective date of cancellation or non-renewal. The Optional Extended Reporting Period shall commence at the effective date of the cancellation or non-renewal.
Only one such Extended Reporting Period coverage endorsement shall be issued and the Extended Reporting Period for such coverage shall be one (1) year, two (2) years, three (3) years and six (6) years. This period includes the automatic thirty (30) day period specified in Item A. above.
The additional premium for the Optional Extended Reporting Period shall be based upon the annualized rates for such coverage in effect on the date this policy expires and shall be for one (1) year at 100% of such premium, two (2) years at 150% of such premium, three (3) years at 200% of such premium and six (6) years at 300% of such premium.
There is no right to the Optional Extended Reporting Period if the Company or Named Insured shall cancel or non-renew this policy:
1. due to non-payment of any amount due under this policy;
2. due to non-compliance by any Insured with any of the terms and conditions of this policy;
3. due to any misrepresentation or omission in the application of this policy; or
4. if at the time this right could be exercised by any Insured, such Insured’s license to perform professional services has been revoked, suspended or surrendered at the request of any regulatory authority.
Understanding the Professional Liability coverage forms and the terms used are why you need an agent. U.S. E & O Brokers can help in circumstances you may not understand. Stand Alone Extended Reporting Period Policies are available in some cases, or if you have let a policy lapse, other alternatives can be available to help you mitigate E & O risks your business may be facing.