5 Mistakes That Jeopardize Your E&O Coverage
In today’s litigious society, claims and lawsuits against professionals have become all too common. As such, it is important to carefully consider procuring errors & omissions insurance (also known as professional liability insurance) to cover the wide range of existing professional exposures. E&O insurance allows professionals to practice with peace of mind.
However, an innocuous mistake in managing your insurance policy could jeopardize your coverage. In this article we outline 5 key considerations to protect your coverage.
1. Align the Policy's Definition of Professional Services with your Services
The definition of professional services of your policy should align with the services you are, will or have provided to your clients. The absence of such an alignment could lead to a gap in coverage. In other words, a claim stemming from services that are not included in the definition of professional services, could be denied.
Through our partnership with the Digital Bookkeeper Association, we work closely with the bookkeeper community. While most bookkeepers stick to bookkeeping, several offer services such as tax preparation or consulting. The PT Pro policy offers broad coverage to ensure your services are covered.
>> Action item: Review the Definition of Professional Services of your policy. Reach out to your agent or insurer in the event the policy does not meet your requirements.
2. Confirm the Retroactive Date
The retroactive date of an E&O policy establishes the point in time from when forward a wrongful act is covered. Typically the retroactive date matches the effective date of the first purchased policy. It is critical that the retroactive date is carried over to the renewal policy, regardless whether it is the incumbent or a new insurance carrier.
>> Action item: Confirm the retroactive date of your expiring policy matches the retroactive date of your renewal quote or policy. Immediately request a correction by your agent or insurance carrier.
3. Letting Your Coverage Lapse
DO NOT let your policy lapse! E&O policies are written on a claims made basis, which means you can only notify the insurance carrier during the policy period and, if applicable, an extended reporting period. A lapse in coverage means you are uninsured. And to make matters worse, you are jeopardizing the aforementioned retroactive date as you have failed to maintain continuous coverage.
>> Action item: Diary the expiration date of the policy. In the event you let your policy lapse, reach out to us immediately!
4. Prompt Notification of a Claim or Potential Claim
As a condition of your insurance policy, you are required to report any claim or even potential claim as soon as practicably possible. Failure to do so could lead the insurance carrier to deny coverage. Unlike auto or homeowners insurance, the potential loss, both any indemnity payment or legal expenses, is often undertermined. From an underwriting perspective, most carriers will not penalize you for notifying a claim.
>> Action item: Familiarize yourself with your insurance policy's claim reporting conditions as well as the definition of claim and/or potential claim. A potential claim can include a verbal or written threat to litigate or hold you responsible alleging negligence.
5. Accurately Reflect the Named Insured of the Policy
During the insurance application process, carefully consider who is intended to be insured under the policy. Typically that means the legal entity you trade under. However, it can also include a dba or, in the absence of a legal entity, your personal name. In the event of a claim, the plaintiffs are likely to cast a wide net to include each relevant party, which will trigger the policy.
>> Action item: Pay attention to the application process and review your policy details. If a change is made during the policy period, promptly notify your insurance agent or insurance carrier. Lastly, ensure the policy coveras any predecessor entities, even if wound down.
