Not all E&O insurance forms are created equal, that is why you must pay just as much attention to policy provisions, claims handling and carrier longevity as the quoted premium when purchasing the policy. When reviewing your E&O options, you should keep the following issues on top of mind.
1. Claims-made Vs. Claims Made and Reported
E&O policies are typically written on a claims-made basis. Review claims reporting provisions to determine if it is truly a claims-made form or if it is “claims made and reported.” The difference between the two can be significant.
A claims-made policy provides coverage for a claim that is first made during the policy period. It is normally required for the claim to be reported to the carrier “promptly” or “as soon as practical,” but not necessarily during the policy period. The “claims made and reported” policy form requires that the insured not only makes claims during the policy period, but also reports claims to the carrier during the same policy period in which they made the claim.
The two common deductible options when structuring your E&O policy are first-dollar defense—commonly referred to as a “loss only deductible”—and loss and expense. Not every business will be eligible for first-dollar defense. However, policyholders only pay deductibles if there is an indemnity payment.
With a loss and expense deductible, businesses pay their deductible when they incur the first dollar of defense expense. When comparing E&O premium quotes, note that paying your deductible can easily exceed the premiums savings on a policy that offers a loss and expense deductible.
True Cost of a Claim
When evaluating your limits options, be certain that the quotes clearly identify how the policy addresses defense costs. Defense inside and outside the policy limits are common terms for defining options. Defense outside the limits is preferable, as roughly one-third of total claims costs are for defense expenses. It’s Important to keep in mind that you will need $3 million of defense inside the limits to equal a quote of $2 million with defense outside the limits.
The E&O insurance that you purchase becomes real when you face a claim. Between responding to the subpoena, producing documents, depositions, and negotiations and preparing for trial, an E&O claim is stressful, time-consuming and disruptive for any business. Your business cannot afford to have mediocre claims personnel or inexperienced counsel handling your E&O insurance.
About Transparity Insurance Services
Transparity Insurance Services was founded for the purpose of helping clients to ensure their property and assets with no hassle. We are committed to providing a simple, easy, efficient, and positive experience to all of our clients, and prioritize open and transparent communication with our clients. Through our excellent customer service and technology, we can help you to find the right insurance program at a competitive price. Contact us today at (855) 889-2037 to learn more about what we can do for you.