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What You Need To Know About Your Professional E&O Insurance Policy

Fri Apr 29th, 2022 on     Professional Errors and Omissions Insurance,    

Even the most careful and conscientious professionals will, at some point in their career, have someone state they failed in their professional duties. Often, a malpractice lawsuit is filed, causing the professional stress over the possibility of losing their license. Fortunately, most professionals have errors and omissions (E&O) insurance coverage which pays for their defense, as well as any settlements or judgments. If you are one of these professionals, it is in your best interest to be familiar with the terms and conditions of your E&O policy, and if issues arise, know that you can contact a Miami insurance coverage lawyer at our firm. 

What E&O Policies Typically Cover

E&O policies are beneficial to any professional that provides a service to a client who could later claim that the service was performed inadequately or negligently. Although these policies may differ among insurance companies and professions, there are certain matters that are common to most professional E&O policies, and most provide coverage up to a pre-set dollar amount. 

Business owners, salaried employees, hourly employees, and subcontractors are provided coverage under most E&O policies. The policies can also be customized to meet industry-specific needs, and are often characterized as “malpractice” insurance. The policies offer protection from the financial loss incurred from a myriad of claims. Costs and matters covered include:

Defense Costs Covered

If you are sued for being negligent in the services you provide, E&O insurance will help pay for the costs you incur to defend yourself. This includes the cost of a Miami insurance coverage lawyer experienced in representing professionals in your position. 

Also, should a claimant be successful in obtaining a judgment against you for malpractice, or if your Miami insurance coverage lawyer advises that it is best to settle with the person filing a claim against you, your E&O insurance is there to pay the judgment or claim amount. 

Common Matters Covered

Matters commonly covered by an E&O policy include:

  • Missed Deadlines: Meeting deadlines in professional service industries is extremely important. An attorney, for example, has a certain amount of time to respond to a pleading filed against their client. When they fail to do so, their client may lose certain defenses or rights they would have otherwise had. E&O insurance is there to protect the lawyer should a client make a claim against them for such an issue. 
  • Negligence: Clients are often unsatisfied when things do not go their way, even when there is no wrongdoing by the professional providing the services. This dissatisfaction may result in a malpractice claim of negligence, and the E&O insurance is there to provide the funds needed to defend the professional. In cases where there is negligence, coverage is available to settle those claims as well. 
  • Services Not Delivered: When a professional fails to provide services that they represented to the client would be completed, and that failure leads to the client suffering a loss, E&O insurance is there to help. An example of this is when an accountant agrees to file certain paperwork with the IRS for a client but fails to do so. 

What E&O Policies Typically Exclude From Coverage

There are situations where an E&O policy will not provide coverage for a claim made against a professional. Some of these situations are listed below. 

Intentional Acts

E&O insurance is there to cover mistakes or acts of negligence and does not typically cover intentional acts, such as fraud or crimes. In other words, if the professional was aware of the wrongdoing and followed through with it anyway, they cannot have their E&O coverage later pay to defend them or pay any damages associated with that wrongdoing. 

Commercial Risks

E&O insurance does not pay for bodily injuries (except in some cases of medical malpractice) and property damage. If a client is at their accountant’s office and falls over a loose tile, E&O will not protect the professional from any resulting damages. Instead, the professional will need to have commercial general liability (CGL) insurance in place for coverage. 

Punitive Damages

Punitive damages are awarded in cases where a person’s wrongful behavior was intentional or a result of intentional misconduct. E&O insurance will not pay for any punitive damages awarded to a claimant that has filed suit against a professional.

Insured vs. Insured

A popular exclusion in many E&O policies is known as an “insured vs. insured” exclusion. It means that two parties covered by the same insurance policy will not be covered by that policy if they make a claim against each other. 

Copyright & Trademark Infringement

Professionals should be extra wary to prevent copyright and infringement claims from arising as they are excluded under the terms of most E&O policies. 

The Hammer Clause

A client sues a professional service provider for negligent services, and the provider then makes a claim under their E&O policy. The insurer then reviews all the available information, and after consideration, decides that a certain amount should be offered to the claimant. The insured, however, disagrees with the insurer. So what happens?

Many E&O policies contain a clause known as the hammer clause (or cooperation clause, consent to settlement clause, settlement cap provision) that states the insurer has the power to force the insured to approve the settlement offer. If the professional still refuses to settle, the insured may limit their liability to the amount of the settlement offer. If the case proceeds, the professional will be responsible for any amount over the settlement offer amount. 

If you have specific questions regarding the hammer clause and your E&O policy, it is best to speak with a Miami insurance coverage lawyer at our firm.

Talk With a Miami Insurance Coverage Lawyer

If you are a professional and you are involved in a dispute with your E&O insurance policy provider, it’s time to speak with a Miami insurance coverage lawyer at Ver Ploeg & Marino. We understand how E&O insurance policies operate, and the methods used by insurers to deny claims. Schedule a consultation to learn more about how we can assist you.  

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