E&O Exclusions Do They Drive You Crazy
About once a month a prospect actually tells me they hate E&O insurance. It doesn't offend me, but rather reaffirms my commitment to educating my customers. Let's unravel the mystery behind exclusions. Why are they there and what should I look for?
No E&O policy covers everything. Anyone telling you otherwise, or selling "gap" coverage is being misleading. There are, however, generally four categories that exclusions fall into, and once you understand these categories, reading the exclusions won't be as uncomfortable or offensive!
Most exclusions fall into one of four groups
1. Obvious Exclusions
2. Other Insurance
3. Risky Products
4. No Appetite
Here are a few examples:
For "Obvious Exclusions", think of
Circumstances or claims of which you have prior knowledge (you can't buy insurance for a burning house) Fraud, theft, violations of regulations, or violations of laws (insuring criminal offenses or fines and penalties would be against the public interest) Insured vs Insured (one person in the organization can't sue another insured and recover under the insurance – that's what we insurance geeks call a moral hazard) Some will fall under the "Other Common Insurance" category. Insurers want to limit their policy to what it as intended to cover, and drive appropriate claims to other common forms of insurance intended to pick up that risk.
For example, exclusions for:
Bodily injury or property damage (this is included under General Liability Insurance)
Sexual Harassment or Discrimination (this is covered under an Employment Practices Liability Insurance (Also known as EPLI))
How about your own employee benefit plan? (Well, E&O covers you for claims coming from clients. Your OWN employee benefit plan, or a claim coming from a participant, would be covered under an ERISA fiduciary policy)
Others I say fall under "Risky Products." These would be products or services that have proven to be a volatile risk, or an outright loser, that has generated so many claims that very few, if any, insurer will touch them. Think…
Self-funded health or retirement plans (they OFTEN go broke)
Viaticals (where an investor buys out the face value of an insurance policy on a terminally ill person)
Read the definitions:
In addition to reviewing the exclusions, you should also read the definitions in a policy, because some exclusions may be found there. But start with the definition of Professional Services, because there you will find the basis of what IS covered. Then tie it back to all of the definitions, and finally review the exclusions for anything that concerns you.
(Good News/Bad News good medicine means people live longer which means investors don't get paid as soon this equals claims)
Pay phone investment deals
(a deal that WAS too good to be true)
Lastly, the "No Appetite" category.
Many times an insurer simply has no interest in, or cannot properly rate for, the more intense risks. These risks tend to involve the minority, not the majority, of insureds or prospects. If you are one of those involved in these more-risky arenas, and you are not prepared to shoulder the uninsured risks, then the policy in question is not for you. For example,
(risky, often not sold well)
(private deals, many times simply bogus)
These have much less regulation, thus more potential abuses.
In addition to reviewing the exclusions, you should also read the definitions in a policy, because some exclusions may be found there. But start with the definition of Professional Services, because there you will find the basis of what IS covered. Then tie it back to all of the definitions, and finally review the exclusions for anything that concerns you. Discuss it all with your broker. Remember, you don't have to be the E&O specialist your broker should be.
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