What types of situations does E&O insurance protect against?
Exactly what an E&O policy will insure against depends on that policy’s terms, and these vary depending on the professional’s industry and particular policy. With the right terms, a policy might cover situations such as the following:
- Investment advisor fails to follow their client’s investing parameters, resulting in a substantial loss for the client
- Real estate agent fails to inform their client of a property’s zoning restrictions, preventing the client from using a purchased property as intended
- Attorney accidentally sends the wrong file to a judge, potentially jeopardizing an aspect of their client’s case
- Tax preparer mistypes a figure when preparing a client’s return, resulting in underpayment that leads to fines and interest later on
- Media consultant fails to confirm that a commercial complies with all regulations, resulting in fines after the commercial airs
What’s “claims made” E&O insurance?
A large number of E&O policies are underwritten as “claims made” policies. This generally indicates that the timing when a claim is filed, rather than the timing when an incident occurred, is used to determine coverage eligibility.
If a claim is filed during a policy’s effective period, the claim may be covered even if the incident occurred before the policy was purchased. This is different from occurrence based policies, which usually limit coverage eligibility to incidents that occur while the policy is in place.
WIth claims made policies, however, there are a couple of other terms that typically impact eligibility.
One such term is the “retroactive date,” which normally is the earliest date that a claim could have occurred and still be covered. An incident occurring prior to the retroactive date probably wouldn’t be covered, even if it was filed while the policy was in effect.
“Tail coverage” may extend the time during which a claim can be filled beyond the policy’s term, potentially adding many years of protection.