(This is the tenth and final 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)
Exclude Dishonest Acts with No Exception for “Innocent Insureds”
Look for the following language:
“This policy does not apply to any claim or claim expenses based upon or arising out of any intentional, willful, criminal, fraudulent, malicious, or dishonest act or omission by any insured.”
Agents E&O policies contain exclusions that may look the same from one policy to the other, but the exclusions must be read carefully to determine their exact extent. One example is the provision that excludes claims arising out of dishonest acts. Does it exclude all claims arising out of dishonest acts by any insured? Or is it limited to claims against one insured for that insured’s dishonest acts, while preserving coverage for so-called “innocent insureds.” The distinction is important.
Consider for example the case of a CSR who steals an insured’s premium and fails to order a policy. If a claim occurs that would have been covered by the non-existent policy, you can be sure the customer will make a demand against the agency. An E&O policy that excludes all claims arising out of any dishonest act may not respond to pay the claim against the agency.
When reviewing your E&O policy, look for an exception to the dishonest acts exclusion similar to this one: “This exclusion does not apply to insureds who do not personally participate in or ratify the act and who notify us once the act has been discovered.”
The dishonesty exclusion in another policy contains this exception: “This exclusion applies only to the insured who participated in, acted with knowledge of, or acquiesced to such conduct.”
If your E&O policy doesn’t provide a similar exception to the dishonesty exclusion, it might be a good time to find another carrier with a less restrictive exclusion.