Many professionals, particularly those who are new to consulting, may be unfamiliar with miscellaneous professional liability (also known as miscellaneous errors and omissions) coverage. The professional liability marketplace is a highly competitive and creative segment of the insurance industry, and agents must be aware of the coverage available, recognizing the professional exposures that may exist among their clients.

The standard market is tapping into the miscellaneous E&O market, and in some cases, offering lower premiums for this coverage to unsuspecting professionals. Agents must educate insureds on their exposures, coverage details and risks when reviewing coverage. If not, agents put themselves at risk for a professional liability claim as well. Agents should not fall into the trap of the "cheapest is best" mentality, but rather look for the broadest form of coverage to meet the needs of their insureds.

Case in point: An insured can reduce costs by transitioning from a policy that provides outside limit defense coverage to a policy with inside defense limit coverage. However, the agent must carefully explain what this change means.

Inside defense limits only cover the insured to defend a lawsuit up to the limit amount, which is generally around $1 million. Outside defense limits will cover not only the $1 million limit amount, but also any lawsuit defense costs that go above the limit. This seemingly small policy difference could result in millions of dollars the insured would be responsible for if a lawsuit's defense and settlement exceed the inside defense limit. Yes, the agent met the cost need of the insured, but at what risk?

When agents know their insureds and educate them on all exposures, a higher premium cost well outweighs the savings. Visualize this risk: A cement contractor pouring a slab of concrete, including the pipework for all the plumbing in a multi-unit motel, misses the mark by about a foot and has to dig up the slab and pour the concrete again. Luckily, the contractor had added a miscellaneous E&O policy to his general liability contractor's policy, so the fix was covered. Without the added coverage, the contractor would have been responsible for paying for the repairs since a general liability policy excludes work product. The insured paid a slightly higher premium for the extra coverage, but it paid for itself when the work had to be redone.

The professional evolution
Years ago, the term "professional" was used to describe individuals in positions requiring specialized knowledge and academic degrees, such as doctors, lawyers, accountants, engineers and teachers. Generally, these individuals had some sort of malpractice insurance available to them.

As time went on, the term "professional" was expanded to include people whose jobs required licenses or certifications. In the insurance industry, Chartered Property & Casualty Underwriter (CPCU) and Certified Insurance Counselor (CIC) are examples.

This group of professionals, which included insurance and real estate agents and brokers, gained prominence in the 1970s and 1980s. The excess and surplus market developed coverage to meet their specific needs, since they had different exposures that weren't covered under general malpractice insurance. This coverage had limitations and exclusions that were tailor-made for the respective professions. Generally, coverage was for claims made and specifically covered professional acts. For example, a claim would be "failure to perform professional services correctly." For the most part, the anticipated losses in these professions were confined to fiscal losses.

Today, modern business practices, technology advancements and economic factors have broadened the need for professional liability. Many professionals, operating as independent contractors or consultants, have joined the job force and have risk exposure. These consultants are generally employed for a short period of time to work on a specific project that requires highly specialized skills. This new crop of consultants can include Internet designers and programmers, data analysts, title abstractors (individuals who research real estate titles), independent mortgage brokers and financial planners, to name a few.

Professional consultants face many and varied exposures from professional acts, which could give rise to possible claims. These exposures include, but are not limited to:

o Incorrect Web site content (Web designer exposure)
o Incorrectly programmed Web site that results in damage to the owner (programmer exposure)
o Errors made in home title search (title abstractor exposure)
o Giving bad or incorrect financial advice (financial consultant exposure)
o Accidently not disclosing all information associated with a home loan (mortgage broker)

Covering the professional
As these types of consultant positions permeate the job market, these new exposures bring possible coverage that may not be covered in traditional E&O policies. New forms have to be developed to address the new exposures so proper rates can be established.

For example: Does an OSHA consultant need coverage for possible bodily injury arising from the implementation of his recommendations in the workplace? Do Internet developers need personal injury or advertising injury? Perhaps the answer to both questions is yes.

These instances point out the gray area when a person acts on the advice of a professional. As an example, an OSHA consultant tells a business owner that he needs to put anti-slip material on the steps of the building. However, when he does, the material makes the steps more slippery and someone slips and falls. Unless the OSHA consultant has a special endorsement on his miscellaneous E&O policy, there will be no coverage for the claim. In essence, a special endorsement for a bodily injury contingent will remove the gap that is exposed in a normal E&O policy.

All these issues have created an exciting but challenging opportunity for insurance underwriters and brokers to provide solutions. It's important for agents to talk to their customers about what services they are actually providing to ensure coverage of all aspects of the services they perform. There is no "one size fits all" coverage in E&O. A good managing general agent will tailor coverage and provide a comprehensive policy for the agent to present to the insured. It may not be the cheapest, but it will provide the best coverage.

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Cheaper isn't better when protecting against miscellaneous E&O

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