You’ve been selling insurance for years. You always renew your Errors & Omissions Insurance to make sure that your coverage runs continuously, year to year. Are you keeping copies of each E&O Certificate of Insurance going as far back to the very first date that you purchased E&O insurance? If not, you may have a huge problem in the event of an E&O claim that arises from professional services rendered years ago.
Errors & Omissions Insurance or Professional Liability Insurance for insurance agents is written on a claims-made policy form. This means that the E&O coverage that is in-force at the time the claim is made against you, the insurance professional, is the coverage that responds. This is how a “claims made” policy form works – coverage for the E&O claim is addressed by the current E&O Insurance, not by the insurance that was in place when you sold a client a particular product.
How far back in time the current E&O Insurance will provide coverage for sales you made in the past often depends on your ability to provide proof of having maintained continuous Errors & Omissions Insurance. This is done by giving the E&O claim specialist copies of your Certificates of Insurance back to the time that the product that is now the source of the current E&O claim was sold. Your E&O Insurer’s claim department will ask for these documents as soon as they are put on notice of the claim. This is how the insurer confirms the period of “prior acts” they are required to insure.
You may think that because you have been with the same insurer for years that they will have your coverage records. Not every insurer maintains these records and if you are under a sponsored E&O Program, many times that Program’s administrator will be the one that keeps those records; however, the burden of proof of coverage always falls to you, the insured agent. Make sure you have copies of your Certificates of E&O Insurance as far back as you can go. Why? Because if you sold a life insurance policy 15 years ago and the insured passes and a law suit is brought against you and the insurance company, by a surviving family member or beneficiary, in order for your current E&O Insurer to address the claim, you will need to show proof of continued E&O Coverage that goes back to the time you sold that policy.
The Master Policy E&O Programs offer E&O coverage at a lower premium than the cost of an individual E&O policy. Many of these Programs have a limit on the size and/or number of claims one insured can have before they will no longer be eligible to participate. Once you receive a “notice of non-renewal”, you will find that you usually cannot apply to other Master Policy Programs as they all require that you answer certain questions, all of which will ask if you have had an E&O claim. If you have, you will not be eligible to enroll under another Master Policy Program. You will then need to secure an individual Errors & Omissions Insurance Policy.
The underwriter for the individual Errors & Omissions Insurance policy will require an extensive application, including a narrative of the claim(s) you have had and documentation showing what the E&O insurer paid out in defense costs and damages. If the new insurance company is willing to offer a proposal to you, you need to make sure that proposal includes coverage for the sales you have done in the past.
Underwriters of individual stand-alone policies will typically agree to back-date coverage for prior acts back to the date that you first started carrying continuous E&O Insurance. You’ll want to make sure that you can furnish confirmation of prior E&O Insurance.
What happens if you have no proof of your prior E&O Coverage (in the form of issued Certificates of Insurance)? It is very likely that you will lose E&O coverage for all sales that were done in the past and any new E&O policy would only insure you for covered professional services performed as of the effective date of coverage.
Keep good records! Maintain your E&O Insurance year to year without any gaps in your policy periods. Your E&O Insurance need to be continuous. Treat your records of prior E&O Insurance as gold and keep them safe; otherwise, you may not have coverage for a claim that involves a sale that was made years ago.