| September 2017 |
Volume 29, Number 9 |
Maintaining Adequate Limits of E&O Insurance Coverage
For many years, we emphasized the errors and omissions risk to insurance agents and brokers arising out of the sale of policies with liability limits that appear or might eventually prove inadequate to protect their insured customer from a claim. As respect to liability insurance, we suggested an agency or brokerage best practice is to advise customers to buy as much insurance as the client can afford and/or believe is necessary to properly protect their interests. When discussing specific limits of coverage, we've urged you to inform your clients that certain minimum limits of coverage should be considered and purchased. You should also advise your customer to consider buying higher limits, given their own circumstances and possible exposures. If a customer pushes an agent or broker to recommend specific maximum limits, we suggested you make clear that no one, including your agency or brokerage, can ever predict the award a court or jury might grant a plaintiff in a possible lawsuit. Therefore, there is no guarantee any specific limits of coverage will be sufficient to cover any and all claims that might occur. Additionally, we suggested any such discussions concerning specific maximum limits of coverage should include available maximum umbrella/excess limits.
Got a question about your agency or brokerage's errors and omission insurance coverage? Contact Brian Bixby, president of IAAC, IIABNY's membership services division. Email him at
bbixby@iiabny.org or call (800) 851-8853, ext. 233. |
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On balance, we believe many insurance agencies and brokerages have succeeded in dramatically increasing liability limits on a significant portion of the policies they've placed for their customers. We know many agencies and brokerages have established and followed minimum liability requirements for auto, homeowner and general liability insurance coverages they write.
Moreover, we've observed many agencies and brokerages writing umbrella/excess policies in greater numbers and with higher limits than ever before. The frequency of E&O claims against agents and brokers based upon an alleged failure to sell adequate liability limits of coverage have been favorably impacted.
However, if higher limits of coverage are generally being sold to insureds, is there not a lesson to be learned by agents and brokers about the limits of coverage for their very own professional liability insurance? Having taken the many precautions that ensure their customers have the highest limits of coverage, sometimes insurance agencies and brokerages do not do the same thing for their own professional liability limits of coverage.
We have been concerned for some time about the number of instances we observe each year where insurance agencies and brokerages are sued for sums well in excess of their applicable professional liability policy limits. When we are advised upon retainer of the liability limits maintained by our agency or brokerage clients, we are often shocked at the relatively low liability limit in effect compared to the size and sophistication of the business of the agency or brokerage involved in the litigation. For this reason, it is important for every insurance agency or brokerage to look closely at the type of customers they handle to determine the proper limits of coverage for their own professional liability insurance.
When asked, we often tell agents and brokers that the minimum limits their agencies and brokerages should maintain under a professional liability insurance policy are $2 million per occurrence/$2 million in the aggregate. And, higher limits should most certainly be considered. We also tell agents and brokers that it is very possible an aggrieved underlying insured could very well recover far in excess of these limits of coverage in the event of an E&O lawsuit.
When pushed relative to specific maximum limits that should be maintained by an agency or brokerage, we often mention that it is not uncommon for agencies and brokerages to have limits ranging from $5 million to $15 million, or even higher, again with the understanding that no one can ever predict the award a court or jury might grant an underlying insured in the event of an E&O lawsuit. Consequently, we often mention to agents and brokers that there is no guarantee professional liability limits in the range of $5 million to $15 million will be adequate to protect an agency or brokerage in some E&O lawsuits.
The E&O liability limit it maintains is a personal decision for each agency or brokerage to make, perhaps dictated in part by the so-called sleep factor for the principal or principals. The sleep factor we discussed over the years is simply this: how high do the coverage limits need to be so the principals of an agency can sleep comfortably at night knowing they are adequately covered in the event of an E&O claim or lawsuit? The professional liability insurance policy might be the ultimate loss control device. Therefore, we believe the prudent agency or brokerage should regularly evaluate its policy limits and give serious consideration to substantially increasing them. Such an evaluation should reflect the significant exposures faced when insuring a business book as substantial as many have become over the years.
It is no secret many insurance agencies and brokerages benefitted over the last several years from highly competitive rates for professional liability insurance. However, we believe a better night’s sleep could be achieved if some of the premium savings realized over the past few years are spent on higher professional liability limits to ensure your agency or brokerage has sufficient coverage in the event of an E&O claim or lawsuit.
Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of insurance agents and broker's errors and omissions claims and litigation, errors and omissions loss control counsel and education, insurance coverage analysis and litigation and insurance regulatory matters. Please direct any comments or questions to James C. Keidel, Esq. by mail to the main office of Keidel, Weldon & Cunningham, LLP, at 925 Westchester Avenue, Suite 400, White Plains, NY 10604, telephone at (914) 948-7000 or e-mail at
jkeidel@kwcllp.com.
The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Fair Lawn, New Jersey; Warwick, Rhode Island,
Philadelphia, Pennsylvania, Williston, Vermont and Naples, Florida.
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