Every day we hear of urban legends and myths about all aspects of our every day life. Most are generally harmless fun, however when it comes to Errors & Omissions Insurance there are some myths that can ultimately be very costly. The following is my Top 10 list of E&O myths.
The Truth: Little problems can become big problems and if you don’t report them, you
might not be covered.
Typically, an insurance policy defines a claim as a demand for money or service. A claim
must be reported as soon as practicable. According to these policy provisions, a demand for
money or service is a claim and if notice is not provided in a timely manner, coverage can be
denied on the basis that your delay jeopardized the insurance company’s position in the claim.
The Truth: You don’t have to do anything wrong to be sued. Just being sued can be incredibly
expensive.
Most importantly, your policy will pay to hire an attorney if you’re accused of wrongdoing.
Statistics show that 1 in 5 agents will be involved in a lawsuit and 40% to 60% of the cost of a
claim involves defense costs. Your E & O premium can be insignificant compared to the cost of
defending a lawsuit.
The Truth: There are a lot of factors besides claims that effect premium. It’s about risk.
Other factors that effect risk are:
The Truth: When you call your Insurance Company it will likely show on your claims report unless you discuss it otherwise. P.S. It’s better to call than not.
The Truth: There’s no such thing as Insurance Company dollars. Ultimately claims payments are your dollars. You will pay in the future through increased premiums, higher deductibles, loss of coverage, etc.
The Truth: Insurance Companies believe claims history can be an indicator of future losses. Your 5 year loss history is a critical component in the development of your premium. Make sure you know your claims history.
The Truth: The issue is not price, the issue is value.
Major differences in coverage such as Fair Housing, Environmental, Agent Owned
Property, Defense Costs & Deductibles may more than justify an increase in premium.
You might want to consider an “Insurance Buyers Broker” who works solely for you and
can walk you through these important differences. A claim without coverage can cost far more
in the long run.
The Truth: Past transactions may not be covered if there is a lapse in coverage even if it’s
renewed.
All E & O policies are written on a claims made form. This means that if you let your coverage
lapse for any reason you will lose your prior acts coverage and any lawsuit that is filed for
transactions that occurred while you carried E&O will not be covered. This is a little complex,
consult your insurance broker.
The Truth: Many policies do not provide full coverage for sale of agent owned property. Those
that do have restrictions such as:
CAUTION: If the agent or spouse is a contractor or developer, or it’s commercial property or any type of land, it’s probably not covered. Consult your insurance broker.
The Truth: All Insurance policies contain exclusions, limitations and conditions and these
policies are not fun to read. Ask your insurance broker to explain what’s covered and what’s
not and if they can’t explain, get a new insurance broker.
Errors & Omissions Insurance is your protection. Always deal with a professional to fully
understand the risks your firm faces today.