How to Avoid Gaps in E&O Coverage
How to Avoid Gaps in E&O Coverage10.01.2017
and omissions coverage is important for any business. You can be sued for
something you did that you shouldn’t have (an error) or for something you
should have done but didn’t (an omission). You can even be sued if you haven’t
done anything wrong, and that claim or lawsuit will cost you money even if it
is found to be without merit.
Mind the GapMost E&O policies are so-called ‘Claims Made and Reported’ policies. This means that the claim must be both made by the insured and reported to the insurer within the coverage period. Many policies also state that the error or omission that the claim cites must have been made within the policy period. This is where the danger of the gap comes in.
You can have a claim that is made and reported within the policy period, but if the wrongful act occurred outside the policy period, your claim can be denied. If there is a gap in your coverage, even for as little as a day, the policy period doesn’t start until you get that new policy. This means that everything you did prior to obtaining the new policy is no longer covered.
Maintaining an E&O policy consistently is the only way to protect against this. If you or a client receives a non-renewal notice, be sure to obtain another policy prior to the expiration of the existing policy. Keep records of the application for the new policy, and copies of all policy documents, with dates of coverage. These will be needed if you have to show that you had coverage for a certain period of time.
The Risk of a GapHere’s an example. Jane is an insurance agent who has been in the business for 15 years. She has maintained her E&O coverage since she became an agent, and she has never had a claim. Last year, Jane went on a month-long cruise. While she was gone, her E&O insurance policy came up for renewal, but she didn’t see the bill until she came back.
When she realized her coverage had lapsed, she called her E&O broker and applied for a new policy, which went into effect as of the day she reapplied. She breathed a sigh of relief knowing that she was now covered again.
Six months later, Jane got a call from a client who had purchased a commercial liability policy from her several years ago. The client was upset because they had a claim that was not covered, and they felt that Jane should have sold them a rider that would have insured them against the claim. The client filed a complaint against Jane.
Jane submitted a claim against her E&O policy, but her claim was denied. Because she had a gap in coverage while she was on vacation, and the claim that was made against her stemmed from a policy sold before her new coverage began, the claim is not covered.
Your Clients Face the Same RiskKeep in mind that if you sell E&O insurance, your clients face the same concerns. If a client’s E&O policy is subject to non-renewal, either because they neglected to pay the premium in a timely manner or if they have had a large claim and the carrier declines to renew them, it’s important to stay on top of it. Being able to write a policy with a new carrier in time to avoid a gap will keep your clients from suffering losses.
Keeping your E&O coverage in force at all times is critical. Avoiding gaps in your E&O coverage will ensure that any claims that are made are covered.