Your E&O - More than just another policy

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

Purchasing the right coverage is probably one of the most important business decisions you will ever make.

Your receptionist calls and says someone is in the front of the office who would like to see you. Not thinking too much about it, you proceed to the front and are met by an official-looking individual who identifies themselves and asks you for proof of who you are. After you provide your identification they hand you a piece of paper and state, “Thank you. You have been just been served with a summons.” They then leave – and you are left with an official document that has the potential to change your life for a while.

While that scenario might sound a little dramatic, oftentimes this is exactly how it happens.

Until then, you bought your E&O policy and paid the premiums when they were due – not giving much thought to it. Yet how good is that E&O policy? Does it cover what you do? What is the quality of the defense counsel you will be assigned? Does the deductible work like you thought it would? Up until you were served the summons, you probably hadn’t thought much about these questions. While these and many other questions now race through your mind, for better or for worse it is what it is. There is not much you can do now to change it.

Absolutely critical
As you can imagine, there are a number of E&O carriers currently selling this product. Some have been selling it for decades, while others maybe only a matter of months. Certainly a carrier with a track-record of 40+ years has earned their stripes, making you feel pretty comfortable that you will not see a lot of surprises at claim time.

That’s why it is absolutely critical that when you secure E&O coverage to protect your agency you realize that no two policies are the same. Not only is possible that the “what’s covered” might be different, don’t count on the “who’s covered” being the same, either. 

As you hold that legal summons in your hands, there is no doubt you are hoping what is alleged in the document is covered by your policy. Chances are if you bought a policy whose premium sounded too good to be true, it very well may have been because the coverage is not as broad as what you previously had.

As with many products, the old “You get what you pay for” adage applies. Without a doubt, the downside of buying inferior coverage is the potential that the act you are alleged to have committed is not covered and thus not only will you have to defend your agency out of your corporate funds, but will have to handle any judgments out of your agency’s pocket! Equally without doubt is that the size of the legal costs and average judgments are significant enough to have a dramatic impact on the future of your agency.    

Isn’t this what you paid for?
As with many policies, up until a claim occurs, the policy is just a piece of paper. How that company performs at claim time is where “the rubber meets the road.”

Having spoken with literally thousands of agents in my 23 years as Manager of Utica’s E&O program, it is evident that the anxiety you can experience at claims time is enough to put some over the edge. That’s why you want a carrier that gives you the peace of mind you need and is with you side by side. You want a carrier that will assign you defense counsel that understands, and is extremely proficient at the legal liability standards and defenses associated with this class of business. This is not your average counsel; instead, they are skilled in this specific facet of the law and will work extremely hard to protect your professionalism. After all, isn’t this what you paid for?

Based with how your case goes, you may be required to pay your deductible. Are you clear on exactly how your deductible works? Do you have a “loss-only” deductible where you will only have to pay if a judgment is rendered against you? Or do you have a combined deductible where you are going to be required to pay some of the defense counsel costs? Be hopeful that you have the one you thought you did! Unfortunately, if the dec page did not clearly state how your deductible worked, you could be in for a surprise.

Serious business
Buying an E&O policy is serious business – and could be the difference in how (and even if) your agency financially survives a claim. I know what many of you are saying: “I’ve never had a claim.” That’s wonderful! I tip my hat to you!

But I add to that: “Are you good or are you just lucky?” Can you guarantee that in the next year you will not be hit with an E&O claim? Of course you can’t. No one can.  

Then don’t take the chance. Don’t put your agency at risk by playing Russian Roulette with the business you’ve worked hard to build. Buying the wrong E&O policy could cause that to happen. Purchasing the right coverage is probably one of the most important business decisions you will ever make.

In your profession as an insurance agent, you work hard to ensure your clients get the benefit of your expertise and experience. Ask yourself: are you doing a better job of protecting your clients than you are of protecting your agency? That’s something to think about, isn’t it?