E&O Issues in Bankruptcy

Although total business bankruptcies in the US declined by 11% for the 12 months ended March 31, 2011 (54,212 versus 64,148 according to Administrative Office of the US Courts) many issues still linger relating to these bankruptcies. For service companies such as an architect, real estate agent, engineer, lawyer, etc professional liability policies are typically written on a claims made basis. This means that their E&O policy only covers them for claims of wrongful acts reported during the policy period which occurred after the retroactive date in the policy and prior to the policy’s expiration date. When a claims made policy terminates or ends there is no coverage for any claims that may be reported in the future unless the company purchases an extended reporting endorsement. Since the company filing bankruptcy doesn’t have money to pay creditors, they most likely won’t have money to pay for an extended reporting endorsement which can cost from 100% to 300% of the expiring premium. This leaves both the shareholders of the bankrupt company and their clients exposed for unpaid E&O claims.

Clients of bankrupt companies that seek legal action for errors and omissions claims won’t be able to collect unless an extended reporting endorsement was purchased. Board of Director members should consider carefully their bankruptcy plans to include the purchase of extended reporting coverage to help mitigate future claims and to satisfy creditors
Please feel free to contact one of our licensed representatives in order to discuss how we might be able to structure a proper extended reporting option for your E&O insurance progam.

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