By Adam Payton
Errors and Omissions (E&O) Insurance, also known as Professional Liability Insurance, can be somewhat cumbersome to understand, but we hope this blog guides you in the right direction to break down the complexities of it so you and your business are properly covered.
Here's a breakdown of the four specific areas you may want to consider reviewing before purchasing an E&O Insurance policy.
1. The Definition of Professional Services
Your first order of business when looking to purchase an E&O Insurance policy is to ensure you thoroughly define your professional services, in other words, what your work entails. In order for an E&O Insurance policy to provide proper coverage in the event of a claim, the professional services must be clearly defined when the policy is being underwritten. Once the E&O Insurance policy is drafted, you should review and confirm that all you do for work is reflected in the policy so you're fully protected.
2. Named Insured
There are a couple of things to keep in mind when it comes to who's covered—which is the most important part of the insurance policy. First and foremost, the name or names listed on the declarations page on the E&O Insurance policy are the parties covered in the event of a claim. Second, if you have a subsidiary or daughter company, and it meets the specifics of the policy's definition of a subsidiary—it's covered too. Third, if your company also has any affiliated entities, which in general are less than 50% owned by the parent company, they may not be covered under the E&O Insurance policy unless specifically added through an endorsement. If you decide to add any affiliated entities, be sure their professional services are clearly defined too.
3. Policy Form
Whether you work as an engineer, lawyer, or any other profession, every E&O Insurance policy needs to have its own policy form specific to the type of work you do. This will ensure proper coverage and outlines who are insured, the insuring conditions, and the types of losses covered under the policy. It's the responsibility of the Underwriters to draft a policy form tailored to the type of business you conduct, but be sure to review it with a fine-toothed comb so you're not exposed to any gaps in coverage in the event that you have to file a claim.
Similar to other insurance policies, you can only expect to receive coverage for the policy period stated on your policy documents. In the case of an E&O policy, you'll want to ensure your policy coverage includes a retroactive date. A retroactive date provides coverage for a period of time prior to the start date of your current E&O policy. For example, if you purchase an E&O policy in January 2016, then the Prior Acts Limitation Endorsement date—or when the coverage begins—is January 2016. Any claim filed against you prior to this date will not be covered. As years pass and you renew your policy, the prior act date carries forward. So, if you're faced with a claim from 2017 and it's 2018, but you still have the same active E&O policy, your claim will be covered. It's important if you decide to make any changes to your E&O policy that you pay close attention to your Prior Acts Limitation Endorsement date.
In the end, there are many things you should review and consider when shopping around for an E&O Insurance policy—just be sure to keep these four top of mind. Another thing to keep in mind is that obtaining an E&O Insurance policy can also be an added benefit and value for your clients because it can potentially distinguish you from your competitors by showing your reliability and trustworthiness to get the job done right. In addition, some clients may even require you to obtain this type of insurance policy before you begin a project so if you already have a policy, you're ahead of the game.
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