Many agents question the applicability of an insolvency exclusion under an Errors and Omissions policy. While each E&O policy in the market place today addresses the insolvency exclusion differently, there are a few things to keep in mind when reviewing your coverages.
Many of the low cost E&O policies available today have an absolute insolvency exclusion. Simply stated, if the insurance company you are placing your client’s coverages with later goes insolvent and a claim is made against you by your client for the insurance carrier’s failure to pay claims, no coverage would be provided. While the premium for the lower priced E&O coverage may seem attractive, there are typically coverage restrictions in the policy that are keeping the premium so low. As such, price should not be your number one factor in shopping and comparing your Errors and Omissions coverage versus other policies available.
The coverage available under the A+ E&O Program, underwritten by Berkley Insurance Company (Rated A+ Superior by A.M. Best), and administered by Insurance Specialties Services, Inc., does provide a carve back to the insolvency exclusion.
Under the terms of this E&O policy, the policy “does not apply to any claim based upon, arising out of, directly or indirectly, or in any way involving…” “any insolvency, receivership, bankruptcy or inability to pay of any organization in which the ‘Insured’ has placed or obtained a client’s coverage; has placed a client’s funds; or has recommended a client invest. However, this exclusion shall not apply if the claim is based upon the insolvency, receivership, liquidation or inability to pay of any insurance company that was rated as A- or better by A.M. Best Company at the time the business was placed, obtained or recommended.”
An important aspect to keep in mind is that the policy would still provide coverage for companies rated less than A- by A.M. Best Company for other covered allegations. However, a good best practice is to monitor the financial ratings of the carriers you are placing your client’s coverage with and to only offer products from financially sound insurers.
Additional information for the A+ E&O Program can be found at www.eoinspro.com or by calling 800/533-4579.