Double Covered but Uninsured

Prudent professionals maintain different types of insurance to protect against various risks. Some typical policies for professionals may include D&O, cyber, and/or E&O policies. The foregoing policies and others may overlap, while others allow gaps for claims that would not be covered. It is incumbent upon each professional to purchase the perfect mix applicable to her practice; there is no one size fits all and more is not necessarily sufficient. Although multiple policies may fit together seamlessly to form a safety net, other policies allow for gaps in coverage that could result in out-of-pocket exposure.

Professionals may assume that multiple policies working together will afford them coverage from all claims. Wrong. Professionals should be cautious that policies do not leave holes. Consider, for example, a consumer services company that is sued for alleged violations of state unfair business statues for misleading advertising claims. The company maintains both D&O and E&O coverage, and tenders the claim to each carrier. Instead of receiving “double” coverage, the employer soon learns that the D&O insurer has rejected that claim because it falls within its “professional services” exclusion, while the E&O carrier avers that the claim is a non-insured wrongful act, which falls outside the scope of its narrowly defined “professional services” provision.

While it is impossible to foresee every type of claim, professionals can take steps to protect themselves from gaps in coverage when negotiating their D&O and E&O policies. Specifically, when possible, the company should review the language of each policy together to ensure that the D&O “professional services” exclusion is clearly defined and is no broader than the definition “professional services” covered under the E&O policy.  Additionally, the insured professional should be sure to scrutinize how each policy interacts and clarify which policy has priority under particular circumstances. By taking steps in advance to clarify and coordinate policies, professionals will be in a better position to respond to a potential claim.

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1 Comment

  1. A knowledgeable and experienced insurance broker wouldn’t allow either double coverage, or a gap in coverage (and that’s why knowledgeable and experienced insurance brokers play such a vital role in the writing and placement of D+O and E+O insurance coverages).

    In the example given (second paragraph of the post, “false advertising claim”), coverage COULD exist under the D+O, if the “Professional Services Exclusion” had been modified with a carve-out for “failure to supervise” verbaige. Additionally, an additional source of coverage for this situation could be the entity’s Commercial General Liability (CGL) policy, which has some specific Advertising Liability coverage generally built into the base policy language.

    In all reality, a solid knowledge and understanding of both D+O and E+O insurance would lead the insurance professional to believe that there could likely be NO coverage under the E+O policy, the primary purpose of which is to defend the entity and provide coverage for settlements relating to the entity’s providing of services to others for remuneration. And, the policy definition of “Professional Services” doesn’t have to be narrow – the experienced insurance professional can design this language in a quite broad manner, for generally no additional premium amount (to make such a change).

    It all comes down to experience, a detailed knowledge of the insurance products in question, and the insurance broker’s ability to leverage his skill to get the broadest possible coverage at the least possible cost, for his client….

    Dick Clarke
    J. Smith Lanier & Co.
    Atlanta, GA

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