(This is the first of a ten-part series highlighting significant coverage issues in agents’ E&O policies. Take a look at your E&O policy. If it includes the wording described below or something similar, you may need an E&O makeover. Contact Gunnar Kephart at IIAT Advantage E&O at 800.880.7428)
Look for this wording: “This insurance applies to claims for damages only if the claim is reported in writing to us prior to the expiration date of the policy.”
This type of policy covers a claim only if the claim is “made” against the agency and reported during the policy period, even if the policy is renewed by the same company. A claim is “made” against the agency when anyone in the agency receives a written demand – a letter from an attorney or a lawsuit – or becomes aware of a situation that may give rise to a claim in the future. The danger here is obvious.
If the lawsuit is served the day before the policy expires, there may not be enough time to report it to the carrier. If a letter from an attorney arrives in the mail and is directed to the employee who handles that account, the employee may be reluctant to pass it on to the agency principal. Once the E&O policy expires, it’s too late.
The preferred wording provides coverage on a “pure” claims made basis, meaning a claim made against you during the policy period is covered as long as it is reported “as soon as practicable.”