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ISO Products Perspective Coverage for E&O exposures Needed liability coverage beyond that provided by general liability policies By John Giordano and Doug Kahn When a newly constructed high school presented moisture and mold problems, the school district sued the architects on the project for $6 million. The suit was dismissed, giving rise to another suit—against the district's former law firm—seeking $8.4 million in damages. That suit claimed the firm was negligent in missing a key filing deadline that cost the district millions of dollars. In another case, a real estate agency reportedly agreed to pay $60,000 as part of a settlement for violations of the Fair Housing Act after advertising a "no-child policy" at a local condominium. In a third case, a city sued its insurance broker for $4.4 million for failing to advise it of the appropriate insurance needed to rebuild and renovate its city hall, which was destroyed in an arson fire. Many businesses might be under the impression that these types of lawsuits would typically be addressed under their general liability policy. They most likely would be wrong. The focus of general liability insurance is to address claims arising out of bodily injury, property damage, and personal or advertising injury. Where then might one turn if the claims are for other than bodily injury, property damage, or personal or advertising injury? That's where professional liability insurance can come into play. Professional liability insurance policies, also referred to as errors and omissions policies, were originally designed to be written for "learned" professionals, such as doctors, lawyers, accountants, and architects. The idea behind professional liability was that the insured was engaged in an occupation that required considerable training and specialized study, relying more on mental acuity and expertise than physical performance. The concept of what constitutes a profession appears to have broadened considerably over time, and the term professional is now often liberally applied to numerous specially skilled occupations, including business consultants, Web designers, cosmetologists, software developers, insurance agents, and real estate agents. In fact, miscellaneous professional liability forms can often address hundreds of various classes of services. Over the years, professional liability insurance has developed into three main areas: medical malpractice (such as physicians, surgeons, nurses, and hospitals), nonmedical professional (such as lawyers, accountants, insurance agents, architects, and engineers) and executive liability (such as directors and officers and employment practices liability). Coverage in a typical nonmedical professional liability insurance policy is on a claims-made basis and generally includes a duty to defend, defense within limits, and a wrongful acts trigger. ISO's Professional Liability (Other Than Medical) Program—which currently makes available insurance programs for lawyers, real estate agents and brokers, and insurance agents and brokers—incorporates those features and extends coverage to spouses and innocent insureds. Many professional liability policies generally cover past and present employees, predecessor firms and the estates, heirs, executors, trustees, administrators, and legal representatives of the insured in the event of the insured's death, incapacity, insolvency, or bankruptcy. Lawyers provide a range of ancillary services that are covered under a typical professional liability policy. Those can include rendering services such as an arbitrator, mediator, title agent, and notary public. Lawyers professional liability insurance policies traditionally cover not only the firm's lawyers but also other lawyers retained as counsel, independent contractors, lawyers on a per-diem basis, and retired lawyers. The day-to-day activities of real estate agents can present potential errors and omissions claims. The collapse of the real estate market across the country over the last several years has impacted: the number of these professionals; the expanded scope of services they provide; and, at times, the need to become involved in areas in which they have minimal prior experience or expertise. In addition to these professionals' agents and brokers, the firm's salespersons and independent contractors are also typically insured when rendering services on behalf of the named insured or predecessor organization. Coverage is also usually available for the insured's use of a lock box and for claims arising out of violations of the Fair Housing Act. Professional liability policies for insurance agents and brokers typically extend coverage to not only the agents and brokers but to independent contractors and salespeople as well. Beyond the traditional role of selling property, casualty, life, and health insurance products, the insured agent could be involved in nontraditional operations that have the potential to lead to errors and omissions claims. Examples of nontraditional operations include teaching an insurance course; selling and servicing mutual funds; acting as a third-party administrator; and creating, administering, or placing coverage or benefits with a Multiple Employer Welfare Arrangement. While the frequency of wrongful-acts claims tends to diminish when the economy improves, a 2012 study of lawyers professional liability insurers—by the insurance brokerage and consulting firm Ames and Gough—shows the severity of claims against lawyers has been increasing. With the housing market perhaps just starting to recover, real estate agents have sought additional sources of income, such as entering new niche markets, which can increase their exposure to loss. Insurance professionals are responsible not only for procuring the coverage requested by a client, but they are also expected to advise clients of additional coverage they might need. Insurance agents need to assess the professional liability risks faced by their clients and how best to address them. ISO offers products to address the professional liability exposures of lawyer, real estate, and insurance agent clients. It also has additional errors and omissions products under consideration for architects and engineers, accountants, miscellaneous professionals, technology professionals, and bankers. The authors John Giordano is assistant manager and Doug Kahn is manager, Specialty Commercial Lines at ISO, a member of Verisk Insurance Solutions Group at Verisk Analytics (Nasdaq:VRSK).
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