(This is the eighth 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)
Aggregate Limit Same as Per-Claim Limit
Look at the limits on the declarations page. Is the aggregate limit the same as the per-claim limit?
If the aggregate limit on your E&O policy is the same as the per-claim limit, you run the risk of running out of insurance. When an agency gets sued, it may take years for the case to proceed through discovery, trial and appeals.
In one case reported to IIAT, a Texas agent was sued in 2005 for failing to procure proper coverage for a restaurant. The agent tendered the lawsuit to his E&O carrier under the 2005 policy period. The jury awarded a large judgment against the agent and the agent’s E&O carrier took the case through the appeals process. The Court of Appeals upheld the judgment, and the E&O carrier appealed to the Texas Supreme Court, which ended the case in 2009 by refusing to review the lower court’s decision. The carrier paid slightly over $1 million in damages and pre- and post-judgment interest.
For the purpose of this article, let’s assume the agent’s E&O policy provided limits of $1 million per claim and $1 million aggregate, and let’s assume another claim was filed against the agent’s policy during the 2005 policy period. The second claim was a slam-dunk error on the agent’s part and the E&O carrier paid $250,000 to settle the claim within a few months after the claim was reported. That would leave only $750,000 remaining on the policy aggregate limit. When it came time to pay the court judgment against the agent in 2009, the E&O carrier would have written a check for $750,000. The agent would have been forced to pay the remaining $250,000 out of his own assets.
While the second part of this story is fiction, it could happen to you. That’s why it’s a good idea to carry an aggregate limit that is higher than the per-claim limit. Most E&O carriers offer a higher aggregate limit and the cost is not as much as you might think.
If your E&O policy provides an aggregate limit that is the same as the per-claim limit, ask your agent or carrier if a higher aggregate limit is available and if so how much it will cost to increase the aggregate limit to two or three times the per-claim limit.