Are You An Insured Under Your E&O Policy?

When comparing one E&O policy against another, you may be looking at which acts are covered, whether 'full prior acts' is provided, and whether defense costs are in addition to or within the limit of liability. Those are excellent areas to review. But one area that seems to get overlooked is who is considered an insured under the E&O policy. I’m sure you’d agree that it’s important. After all, everything in the world could be covered with no exclusions. However, if you don’t meet the definition of who’s an insured, it’s a moot point.

For this article, I’m going to focus on two areas: the Life side of the industry and individuals selling mutual funds, variable annuities, and financial products through a broker/dealer.

First, let’s focus on Life agents who may find the E&O concept somewhat foreign because they typically don’t deal with P/C products. Ask yourself these questions:

• Do you receive a certificate of insurance or a policy? If you don’t have a policy, do you know what coverage you have?
• If you’re operating under more than just your personal name, such as a corporation, is that entity named on the policy or certificate? If not, there’s probably no coverage.
• If you’re insured as an additional insured under another policy, do you place all of your business through them or do you need to place business through other agencies or directly to the carrier? If you place business directly, errors committed in placing that business are probably not covered.
• Are you the only licensed individual in your agency?
• Does your E&O provide coverage for employed agents, 1099 individuals, or independent contractors that place business through you?

If you don’t know the answers to these questions or have some serious doubts, you may have a serious gap in coverage.

Some policies have a very broad definition of who’s an insured, including, but not limited to:

• The actual named insured, whether it’s an individual, partnership, or corporation
• The executive officers and directors (for their duties for the named insured)
• Your employees, whether they’re regular, leased, or temporary
• Your licensed solicitors or office brokers
• Former insureds

Those of you who sell financial products have secured the coverage through your broker/dealer, often with little choice. There’s one area that could cause major E&O problems. Although you’re personally covered most of the time, the entity you’re selling on behalf of isn’t named as an insured. Take this potential claim scenario: You’re selling financial products and using the stationary of the agency that you’re working on behalf of. Suppose you make an error or are alleged to have made an error. Since you used the agency stationery in the proposal, the agency gets named in the suit. With most broker/dealer policies, the coverage is in your name only and the agency is not covered. Does your agency manager know this?

Well, as you can see, the 'who is an insured' section of the policy is a major area that should be reviewed in purchasing E&O. By checking that now, you might save a lot of aggravation later.