Ten Things You Don’t Want to See in Your E&O Policy – #4

(This is the fourth 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)

No Aggregate Deductible

Look for an aggregate deductible in the declarations or policy form.

In a typical year, IIAT Insurance Agency handles one E&O claim or incident for every four agents insured by the program. Truly, most agents won’t report a claim or incident during any four-year period while some agents are reporting more than one.

One Texas agency was served with eight lawsuits arising out of Hurricane Ike. Granted, the agency is located in a high-risk hurricane area, but no Texas agency is immune from the possibility of a local catastrophe – hurricane, tornado, hail or flood – that could produce multiple E&O claims. With each reported claim, an agency is faced with the possibility of paying its deductible, either to defense attorneys to defend the agency, or to the claimant should the E&O carrier decide to settle the claim or lose the case in court.

If the agency reports multiple claims during the policy period, multiple deductibles may be incurred. That’s why most “standard” E&O carriers offer an aggregate annual deductible option, typically two or three times the per-claim deductible. Such an option always comes with a higher premium, but the peace of mind that goes with an aggregate deductible is worth it.

With an aggregate deductible, an agent always knows the maximum amount that he or she will have to pay during a policy period even if the agency reports multiple claims. The agency is able to set aside at least a portion of the aggregate deductible in reserve “just in case.”

If your E&O policy doesn’t contain an aggregate deductible, ask your E&O agent or carrier if one is available. If not, ask for alternate quotes from other markets the next time your policy is up for renewal.

For more info, contact Gunnar Kephart at IIAT Advantage E&O at 800.880.7428

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