No agency wants to commit an error or omission that results in a huge E&O claim. Likewise, no E&O carrier wants to receive an E&O claim that results in a large payout.
But these claims happen, and many of the worst ones—those in excess of $1 million—come from the same lines of business and involve similar types of errors.
Leading the way in 2006-2018, commercial general liability claims comprised about 23% of E&O claims with payments in excess of $1 million and about 30% of claims with payments in excess of $2 million. Here are a few examples:
- $5 million in losses on a claim alleging the agent missed an exclusion in the underlying policy placed for the manager of a large construction project at a power station. An explosion killed six workers and injured 55 more, in addition to causing property damage to 33 nearby homes.
- $2 million on a claim alleging the agent failed to place a policy that included coverage for faulty workmanship for the developer of a condo project.
- A settlement of more than $4 million on a claim alleging the agency bound coverage for nightclubs in violation of underwriting guidelines and failed to include assault and battery exclusions on the policies.
- A settlement of $1 million for the agent's failure to place the assault and battery sublimit on a binder.
- A settlement of $1.7 million for the agency's failure to timely notify the CGL carrier of an underlying claim against an apartment complex involving the fatal shooting of a mother and her three surviving children.
- A settlement of $1.4 million for a claim alleging the agent failed to timely notify the underlying excess carriers of a $12-million judgment for a lead poisoning case against the insured apartment complex.
- $1 million for a claim alleging the agent improperly classified the operations of a street cleaner and failed to advise of an exclusion for operations on the open road, leaving an uncovered fatal injury.
Commercial property claims made up about 17% of $1-million E&O claims. Since commercial property policies on high-value real estate involve high limits, an alleged error or omission can cost millions of dollars:
- A settlement of more than $3 million for the agent’s alleged failure to place wind coverage for a large apartment complex.
- A settlement of $2 million, on top of $700,000 in defense costs, when a claim proceeded to trial against an agent for alleged failure to place blanket coverage for a sportswear manufacturer.
- A settlement of more than $2.2 million for an error on the application regarding prior claims and the number of vacancies in an apartment complex, which later suffered a total fire loss.
- A settlement of $2 million from the agent's alleged failure to advise of the wind and hail exclusion on an excess policy issued to a large professional office building.
- A settlement of $2.2 million for a claim involving inadequate business income limits for a manufacturer.
- A payment in excess of $10 million for a claim involving failure to secure blanket business interruption coverage for business interruption for a marina.
Placement of auto and trucking policies resulted in about 14% of the larger E&O claim payments:
- More than $1 million in losses and defense costs for a claim alleging the agency assumed responsibility for hiring the plaintiff’s drivers when it undertook the task of obtaining driving records.
- A settlement of $2.5 million for injuries to the insured’s employee when the agency allegedly failed to place non-owned auto coverage for a high-end vacation rental company. The employee suffered double leg amputations in an accident that occurred while driving her personal vehicle for work-related purposes.
- A settlement of $1.3 million for the agent's listing of a car on a business auto policy that was not owned by the company, but rather registered under the name of the owner's son, resulting in denial of coverage by the underlying auto carrier for two serious head injuries.
- A settlement of nearly $1.8 million on a claim by the underlying auto carrier against the agent alleging that they were required to pay $5 million for two car accident fatalities and an injury claim caused by a driver who was not intended to be listed on the client's commercial auto policy, due to the agent's failure to include “Sr.” after the name of the intended insured on an endorsement.
- A settlement of $2 million on a claim that the agency should have advised their client, a party bus operator, that they were required to obtain at least $5 million in limits as a motor carrier pursuant to Federal Regulations.
Placement of bonds, meanwhile, resulted in about 13% of larger claim payments:
- A settlement of $2 million on a claim that an agency issued payments and performance bonds for a construction project without the surety's authorization.
- A settlement of $1.9 million on a claim that the agency failed to obtain preauthorization from the state for the client to bid on large state highway projects.
Workers compensation coverage resulted in about 9% of larger claim payments, with the worst involving serious underlying injuries such as brain injuries and paralysis, or even death. In many cases, the E&O carrier was required to step in for the workers comp carrier and provide the missing coverage, with several settlements ranging from $1-5 million. In some states, even if you are able to settle the workers comp claim, you may be required to pay continuing medical for the rest of the claimant's life.
Although placement of excess and umbrella policies comprised only about 6% of seven-figure E&O claims, the exposure for these claims can be quite significant. In one such claim, failure to obtain a follow-form policy required a $16-million settlement.
Similarly, placement of professional liability coverage also results in about 6% of the most severe claims, such as one in which failure to secure an extended reporting period' for an obstetrician resulted in an uncovered claim for birth injuries and a $1.1-million settlement.
In another claim, an agent's failure to place E&O coverage for a tax service resulted in an $800,000 settlement, plus $245,000 in defense costs. Are coverages not listed above inherently E&O-safe? Hardly. Any line of business can vie for the dubious honor of making it onto this list.
Caryn Mahoney is an assistant vice president, claims specialist with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re.
This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article.
The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.