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 AXIS Insurance Services Blog |
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Question: Can an E&O policy be of any use when allegations of fraud or dishonest acts are made against an Insured?
Answer: It depends on the fraud, who committed it and the type of E&O policy issued.
Most E&O policies have an outright exclusion relating to any fraudulent activities including simple allegations of fraud. We believe this is unfair to parties that did not participate or were not aware of such an act. A standard exclusion in an E&O policy would read as follows:
Extended Reporting Coverages are vitally important when companies close or are sold. Often we find companies simply don’t have the money to purchase an extended reporting endorsement (Tail Coverage) and are left to take their chances with future claims. We feel it is vitally important when closing or selling a company to plan for the [...]
Brokering Commercial Mortgages and E&O
Our Commercial Real Estate clients have begun brokering mortgages for investors and clients. The transaction conceptually is no different than an investment sale which finds a buyer and seller for a piece of investment property except in this transaction the real estate broker finds a seller of a distressed mortgage and [...]
Errors and Omissions Insurance is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third party administrators and other business professionals. An error or omission, a mistake, which causes financial harm to another, can occur on almost any transaction in any profession. This type of insurance (E&O) helps to protect a professional, an individual or a company, from bearing the full cost of defense for lawsuits relating to an error or omission while providing their Professional Services to others. This is a separate coverage from a standard general liability or property insurance policy. Errors and Omissions Insurance may be referred as any of the following: E&O, E&O Insurance, Errors and Omissions or Professional Liability insurance Malpractice (legal and medical professionals)
We are seeing an increased exposure for insurance related issues for property managers. E&O policies exclude coverage for any failure to place or procure any insurance for any client. The basis of the exclusion is that property owners and insurance agents should be held liable for such claims not the property manager. Unfortunately, based on foreclosure rates and the economy, many property owners are not property insuring their properties or dropping the coverage altogether. This creates a significant risk for the property manager that isnt covered by an E&O policy.
The collapse of the real estate market and the high incidence of foreclosures has created a new service offered by many real estate agents and brokers; Receivership Services. It may seem like a natural extension of real estate services, but when it comes to your errors and omissions insurance policy that may be a different story as such services are often not covered by your current E&O policy.
Breach of Privacy and Breach of Security coverage provides protection for wrongful acts or claims resulting from unauthorized disclosure of personal and confidential information either as a result of your actions or the actions of another, such as a hacker. Most insurance agents and brokers E&O policies have not been updated to reflect the modern day exposures of conducting business electronically and fail to adequately cover such exposures.
“Tail Coverage” for insurance agency E&O is simply the jargon for the Extended Reporting Coverage (ERP) feature usually found in a claims made policy. It allows you to cover E&O risks, after the E&O policy has expired, for claims that may arise down the road. It is not extending your policy period, but simply giving you more time to report an incident or claim to the carrier for professional services provided subsequent to the retroactive date listed in the policy and prior to the expiration date of the policy. Many policies only give you the right to purchase such coverage in the event the insurance company cancels your policy. Without this coverage, you are self insuring; the legal defense cost and damages are on your own dime. Make sure that your policy has a bilateral tail; meaning that you can use this option whether you cancel or the carrier cancels your policy for reasons other than default. If you retire, buy or sell an agency, or simply wind down your operation, this becomes an important policy feature.
We are seeing an increase in the number of commercial real estate E&O claims due to foreclosure or business failure. Due to the economy many shopping centers are experiencing a loss of tenants. As businesses in these shopping centers go under, their is loss of traffic within the shopping center which affects all the other businesses.
In July of 2007 I wrote an article about the rise of E&O claims related to the Real Estate industry. We are still seeing an increase in reported E&O claims. There are a number of factors contributing to this trend, including:
1. Collapse of the Sub Prime market.
2. An increase in the stock market as investment dollars shift from real estate to equity investments.
3. Increase in interest rates.
4. Increase in foreclosure rates, both personal and corporate.
5. Stall of the residential real estate sales in major U.S. markets.
6. A slow down in the growth of increased rents.
