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Errors And Omissions Insurance For Insurance Agents And Brokers
Errors and Omissions Insurance for Insurance Agents and Brokers
Insurance agents and brokers (IAB) perform a valuable service for the business community. They are responsible for helping businesses manage risk and mitigate claims associated with everyday operations. Because of this responsibility, insurance agents are held to a high standard for ensuring that their clients are properly covered. Increasingly, insurance agents and brokers are subject to errors and omissions claims when the claims of their clients go unpaid for a variety of reasons.
Insurance agents manage this risk by purchasing Errors and Omissions Insurance (E&O) for their agency or brokerage. E&O is designed to provide protection for liability associated with professional services for errors or mistakes that lead to damages caused by someone else. This insurance helps protect the company and its agents from litigation costs, including defense for claims that the IAB failed to perform its duties in either providing for coverage that are inadequate or not providing coverage at all. Some features of an E&O policy are as follows:
Limits
E&O policies have a specific limit for both a single claim (specific) and for all claims in a policy period (aggregate). A typical limit would be $1 million/$1 million. This means $1M for any individual claim or no more than $1M for all claims in a given policy period.
Defense Costs
Defense costs are one of the more significant costs and considerations in purchasing a professional liability policy. Carriers differ in whether they cover defense costs in addition to the limit of liability or included in the limit of liability. The difference is simple. For example, you obtain a $1 million policy and you incur $250,000 defending the claim. One scenario would be that the policy would pay $750,000 towards the settlement, in addition to the defense costs (defense inside.) The other would pay $1M in addition to the defense costs (defense outside).
Claims Made Provisions
Errors and Omissions Insurance policies are typically written on a claims-made basis. This differs from a standard general liability or automobile policy in that a policy must be in force when the claim is made regardless of when the incident that gave rise to the claim occurred. This is subject to a retroactive date, which is the first date that a claim that occurred can be considered for coverage. So for example, if you have a policy in force in year one and cancel the policy in year two, no claims reported after that date will be considered for coverage, unless an extended reporting endorsement is purchased, regardless of when the incident that gave rise to the claim happened. Many times an insured will believe that since they had a policy in force when the incident occurred they should have coverage for such a claim.
Extended Reporting
Extended Reporting Options are a component of a claims-made policy. As noted above, a policy must be in-force when a claim is made in order for coverage to apply in a claims-made policy. When you cancel a claims-made policy you have an option to purchase additional time in which to report a claim that occurred during the policy period and subsequent to the retroactive date listed in the policy. The options available differ by insurance company and also by state, but typically range from 12 months to 36 months, although some companies may offer longer options. The typical cost of this coverage ranges from about 100% of the expiring premium for a 12-month option up to 250% for 36 months.
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