E&O policies are in the "Claims Made" form meaning that if my policy is in effect in 2008, and a claim is made against the policy in 2008, the claim is covered within the policy period, even if the loss being claimed actually happened several years earlier.
That is why E&O insurers question you about possible pending claims before issuing a new policy.
(The other form of insurance is called "Occurrence" and means a loss is covered by the policy in effect on the date of the loss.)
A local independent broker closes his office and joins mine. The possibilities:
- If he cancels his E&O policy, he is losing coverage on all his prior transactions. Experienced agents know this is not a good idea. Problems can rear their ugly heads years after a transaction is closed.
- I could assume liability for his previous transactions. Even if all his agents have been meticulous in all their transactions, do I want to have to review years of old files? No, thank you.
- He purchases "tail coverage", this is a policy issued to a closed company to continue E&O coverage on prior acts.
- Or he continues to maintain his existing E&O policy, even though his company is no longer actively selling.
If all this seems odd, remember to adjust your thinking to the "Claims Made" form of insurance. :-) Remember, with E&O insurance it does not matter if you had insurance in effect on the date the loss occurred. What matters is that you have insurance in effect on the date you first become aware of the claim.
Article with good explanation here: http://www.eqgroup.com/Pdf/ClaimsMade_expl.pdf
I think that "Claims made" form of insurance is self-perpetuating, and only benefits the insurance industry. It makes self-insurance a real contender for the best use of your insurance dollars.
It's alot to process through one's brain, that's for sure.
If you let a "claims made" policy expire, you've lost the coverage for all those years you paid for and maintained the policy. The policy needs to be in effect as of the date you learn of the claim.
On the other hand, you could go without insurance for years, then finally obtain a policy. After you obtain the policy, someone makes a claim about something that happened a few years back, and you're covered because the policy is in effect at the time the claim is made. (Assuming it clears all the conditional hurdles. :-) )
Cheryl- Wow, I hadn't even thought of this with different Offices merging. Interesting for sure, thanks.
Cheryl- Very interesting. I am going out on my own in 09 and did not know that my past transactions would not be covered etc... I really need to get my head around E&O insurance quickly. Thanks for the post.
Best,
Scott
I switched offices this week, I need to make sure all is well with my world. thanks cw