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FAQ's
 
 

Here are some of the most common questions we receive from our clients.  Don't see your question here or want more information?  Contact us! Also if you see an unfamiliar term, please view our GLOSSARY OF INSURANCE TERMS for help.

Q: I have a new agency and/or I am newly licensed.  What is the process for securing E&O?  Do you have any markets for a newly licensed agent/broker?
A: In addition to the indication form that can be found here, we’ll also need the following items for new agencies:

  1. Copy of resumes for all principals and/or key employees.  If resumes are not available, please click here for a downloadable blank resume form.
  2. Copy of your business plan or mission statement, if available.
  3. When completing application materials, we’ll need you to include 12-month projections for all questions that ask for premium volume/revenue/carrier questions. List all carriers you expect to write business with.

Q: What is claims-made coverage?  What is claims-made & reported coverage?
A: Insurance policies can be written one of three ways:  occurrence-based, claims-made or claims-made & reported.  With an occurrence policy, a claim is reported to the carrier that held the policy at the time of the loss, even if the policy has expired.  A claims-made policy requires that the Wrongful Act happen and a claim is made against the policyholder within the same policy period.  A claims-made & reported policy requires that the Wrongful Act happen, a claim made against the policyholder and the policyholder report the claim to the carrier within the policy period and/or any Extended Reporting Period applicable.


Q: What is a retroactive date and why is retroactive coverage so important?  What is the difference between a retroactive date and full prior acts?
A: Obviously, by the explanations of claims-made and claims-made & reported policies above, what claims would be covered under a policy if there was only a 12-month period to cover would significantly reduce coverage for the policyholder.  This is especially true since many claims are not brought against the policyholder until all appeals on a denied claim have been exhausted, so it could be months or even years after the initial alleged Wrongful Act when the insured comes to the decision to hold their agent/broker responsible for the denied claim.  The solution to this came in the form of a retroactive date.  A key component to this is that the policyholder must maintain continuous coverage in order to pull their retroactive date from the expiring policy to their new policy.  In this way, if a firm has maintained continuous E&O insurance coverage since 7/1/1992, even though their current policy is effective from 9/1/2012-2013, they have coverage for alleged Wrongful Acts back to 7/1/1992.

Another possibility is having the policy say "full prior acts" or "no retroactive date."  This means that prior acts coverage goes all the way back to the date you opened your doors.  However, it is important to note that if there are predecessor firms, some carriers require that they are named specifically or the full prior acts provision would only go back as far as the current firm's establishment date.


Q: What is an extended reporting period (TAIL)?
A: An extended reporting period, or TAIL, is extra time to report a claim that is made against you once the policy period ends.  Policyholders purchase TAILs for various reasons, but the most common reasons are because of a prior claims history preventing the insured from purchasing a new policy with retroactive coverage or to provide extra time to report a claim after the sale of their firm.


Q: Is my policy admitted or non-admitted (surplus lines)?  What is the difference?
A: Depending on the state the insured is located in, there are anywhere from two to seven or eight admitted E&O carriers. Generally speaking, admitted paper is preferred as the policy forms, endorsements, underwriting guidelines and rating structure have been reviewed and approved by the state. However, sometimes an insured does not qualify for the admitted markets, often because of the approved underwriting guidelines, and so must be placed with a surplus lines carrier.  Additionally, there are times that a specific coverage is not available within the admitted market, so placing an insured in the admitted market would not adequately cover the insured's exposure.  In that way, the flexibility of the surplus lines carriers is more beneficial.  The easiest way to tell if your policy is admitted or non-admitted (surplus lines) is to look for whether or not there are surplus lines taxes associated with the policy or if there is a service of suit provision in the policy, usually via endorsement.  If you are unsure, please contact us.


Q: I need to send proof of E&O in force to a carrier/wholesaler/partner.  How do I obtain
a certificate of insurance?

A: What you need to do is request a certificate of insurance.  If you received the request via e-mail, you can e-mail the request to Eastern@useo.com.  Alternatively, you can click here and follow the steps provided.


Q: I think I may have a situation that could develop into a claim.  What do I do?
A: Each carrier has different reporting requirements and some have hotlines available for potential claim situations.  Contact us immediately to speak to your broker for instructions.


Q: I may be buying or selling a firm.  How does that impact my E&O and what is the process?
A: The process of buying or selling a firm comes with unique challenges for your E&O.  There are many key facts that impact how to proceed.  Please contact us promptly to discuss!


Q: I have Independent Contractors working for me.  Are they covered under my policy?
A: Most E&O policies do automatically cover independent contractors; however, you should verify this by reviewing the definition of Insured in your policy.  Please also look at your E&O application and confirm that you have the independent contractor listed under the agency staff questions and the volume/revenue he or she produced listed in the volume/revenue questions .  If not, please contact us.


Q: One of my carriers does not have an A.M. Best Rating.  How does this affect my coverage?
A: Most E&O carriers do not have a restriction against placing business with unrated carriers; however, some carriers do place restrictions on unrated carriers in other ways.  One of those ways is the insolvency exclusion on the majority of E&O policies.  Currently, it is customary for carriers to offer insolvency coverage for carriers rated B+ or better by A.M. Best.  During the last hard market, insolvency coverage was much more restrictive in that it was not available at all through most carriers, regardless of the A.M. Best rating.  Additionally, some carriers' underwriting guidelines have a cut off on how much "low-rated" or "unrated" business an insured can write, so it is possible that someone who writes 100% of their business with a "low-rated" or "unrated" carrier will be declined E&O coverage by these carriers.  Other carriers do not have that as part of their underwriting guidelines, but they still do not provide insolvency coverage for these carriers.  There are limited exceptions available through some carriers.  Please speak with your broker regarding these limited exceptions.


Q: I am a wholesaler.  What is the difference between gross & net commission?
A: Most E&O carriers rate primarily off of volume or revenue, but for a wholesaler, there is a further complication because wholesalers do not keep 100% of the commission they are paid by carriers.  Some E&O carriers that rate primarily on revenue want to know a wholesaler's gross commission (the pure commission that is paid under the contract to the wholesaler prior to any commission removed to pay a retailer) and some want to know a wholesaler's net commission (the retained commission a wholesaler keeps after the retailers have been paid, but before any operating expenses are paid, including internal commissions).  For a retailer, the gross commission and net commission should be the same amount because they are not sharing commissions for any other agents/brokers.  Double-brokering is another way of saying wholesaling.


Q: What is the difference between a retail agent and a retail broker for E&O underwriting purposes?
A: The majority of E&O carriers consider someone to be a retail agent if they have an agency contract, usually with binding authority.  They then define retail broker as someone who may be writing directly with a carrier or indirectly with a wholesaler/MGA to access the carrier, but on a brokerage contract and with no binding authority.


Q: Why are E&O applications so long?  Aren't there any programs that only require very basic information?
A: We understand the time commitment and exhaustive information required on the E&O applications do often seem cumbersome for an insured to complete, but the truth is that if someone says that they can bind with very little information (such as your name, state, limits requested & deductible requested), that market is highly suspect.  It is often possible to secure a premium indication based on a short indication form, but those are not bind-able quotes.  Sometimes a carrier can bind off of another carrier's long-form application.  If this is a possibility, it will be noted on your proposal.


Q: What does duty to defend mean?
A: Duty to defend wording is beneficial for an insured because it can take weeks or months for an E&O carrier to fully investigate a claim and determine if there is coverage under the policy.  This is important because deadlines could pass without response from the carrier if the carrier did not have a duty to defend the insured.  If, ultimately, there is no coverage for the claim afforded under the policy, the insured will have to take over the defense of the claim at that time.


Q: What does pay on behalf mean?
A: Pay on behalf wording is the difference between a carrier that pays the defense and damages on behalf of the insured, subject to the application of the retention or deductible.  This is in contract to an indemnification policy, where the insured pays the damages and defense expenses and is then reimbursed (or indemnified), again subject to the application of the retention or deductible, accordingly.  What is important to note about this is that the standard within the insurance agents/brokers E&O carrier community is "pay on behalf" wording as opposed to indemnification wording.  The concern is that a small-to-mid-sized business could not afford to front the money for the defense and damages of a claim until the carrier would indemnify them.  Conversely, the E&O carrier is required to set aside reserves for damages and defense expenses specifically for these purposes, so the funds are more readily available immediately.


Q: What is an aggregate deductible/retention?
A: An aggregate deductible/retention is something that caps the maximum amount of deductible/retention paid at a particular amount, usually 3X the per claim deductible/retention.  What this means is that if you have a $2,500 deductible with a 3X aggregate deductible, the maximum amount of deductible you would pay out in a policy period would be $7,500.


Q: Does my policy provide coverage if I am served with a subpoena?
A: The answer to this question is:  maybe.  Each policy is different.  Some of them specifically cover subpoenas within the policy provisions, subject to a sub-limit.  Other policies do not cover subpoena response at all.  Still other policies consider a subpoena a notice of potential claim and this may trigger coverage under the policy, depending upon the circumstances related to the subpoena.  The recommendation we make is to turn the subpoena over to your E&O carrier and ask for direction as to how to proceed.  Please contact us.


Q: Does my policy provide coverage for disciplinary actions?
A: Some carriers provide a sub-limit, or a separate limit, for defense of disciplinary actions.  They generally do not provide coverage for any fines or restitution levied against an insured, but the defense may be covered.  Please see your policy for specific wording.  If you would like further information on this, please contact us.

Q: What is first dollar defense (loss only deductible/retention)?
A:  When a policy is written on a first dollar defense (aka “loss only”) basis, the deductible does not apply to defense costs.  This means that if a claim is finalized in the insured’s favor and no damages are owed, there would be no deductible owed either.   Here is an example of how it works:

  1.  If a claim is finalized for $10,000 in defense costs with $0 damages owed, if the insured has a $2,500 loss only deductible, they would pay $0 deductible.  If the insured has a $2,500 loss & litigation deductible, they would pay the $2,500 deductible.
  2. If a claim is finalized for $10,000 in defense costs with $1,000 damages owed, if the insured has a $2,500 loss only deductible, they would pay $1,000 .  if the insured has a $2,500 loss & litigation deductible, they would pay the total $2,500 deductible.

Q: What is the difference between defense within the limits, defense outside the limits and an additional limit for defense expenses?
A:  When a policy is written on a defense within the limits basis, the limits of liability are eroded by defense costs.  When there is an additional limit for defense expenses, this limit is eroded before the defense costs will begin to erode the main limit of liability on the policy.  When defense costs are outside (or in addition to) the limits of liability, the defense costs do not erode the limits of liability; however, please note that most carriers do have a provision in their policy that once the limit of liability is paid in full by damages, they are no longer under any obligation to continue defending the insured.   Here are some examples of the differences between the defense provisions:

  1. With defense within the limits, if defense costs are $250,000 on a $2M limit, the limit of liability left to pay any damages is eroded to $1,750,000.
  2. With an additional $1M limit for defense expenses, if defense costs are $250,000 on a $2M limit, the limit of liability left to pay any damages would still be $2M.  The limit would not begin to be eroded by defense costs until the $1M defense expenses limit is exhausted.
  3. With defense outside the limits, if defense expenses are $250,000 on a $2M limit, the limit of liability left to pay any damages would still be $2M.  This limit will not be eroded by defense costs.

Q: How do I submit an application?
A:  Please submit via email to: EEOBsubmissions@useo.com or via fax to: 860-633-3086.

Q: How do I obtain an application?
A: Click here to visit our application page. We will be happy to help you with any questions you have while completing the application. Please call us at 860-633-2043.

Q: What are the standard limits of liability requested by carriers?
A:  Although this varies by carrier and the type and scope of your business, generally speaking most carriers require at least $1M/$1M.  However, please consult the carriers you intend to do business with to verify the minimum limits they require.


Q: What are the minimum limits of liability you offer?  What are the maximum limits of liability you can offer?
A:  We do not like to offer limits below $500K/$500K. We suggest carrying a minimum limit of $1M/$1M.  For maximum limits of liability available, we can build excess layers if necessary up to $50M/$50M.


Q: Can you offer me a quote mid-term?  When is my renewal period?
A: Our carriers will not offer mid-term quotes unless there is a valid underwriting reason for doing so.  Examples of this include your current carrier not being able to provide a specific coverage that you require, such as if you begin writing annuities and your current carrier does not cover this business.   They will not quote mid-term for price reasons.  Your renewal period is the 90 days prior to your E&O expiration.  This is when our office starts sending out application materials to clients and this is when markets begin accepting submissions without considering them to be mid-term submissions.


Q: Why is my five-year loss history important?
A: Your loss ratio is a component of the underwriting process.  The five-year loss ratio is calculated by your total amount of losses for the last five years by the total amount of premium paid during  this same time period.  For example, if your premium for the last five years has been $2,000, adding up to a total of $10,000, and your firm had two claims within the last five years adding up to a total of $5,000, that would be: ($5,000 divided by $10,000 for a factor of .5 or 50% five year loss ratio). This calculation provides valuable underwriting information for the carriers for consideration in processing requested quotations.


Q: What is severability?
A: Severability coverage becomes a factor when considering how a policy responds to a claim involving a deliberate, knowingly wrongful act(s).  When there is severability wording, innocent insureds typically still have coverage for what would otherwise be an excluded claim.  An example of this is if Partner A knowingly writes a policy that is inadequate for a customer, but  Partners B & C have no knowledge of this deceitful act.  If a claim were to come in on a policy without severability wording, it would most likely be denied. However, if there is severability coverage, this means that the innocent partners (and/or employees) who had no knowledge of the deceitful act would have coverage for any allegations made against them (subject to all other terms & conditions of the policy).


 

 
 
 
     
 
 
 
 
 
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Eastern E&O Brokers, Inc.
dba Eastern E&O Insurance (MA Only)
41-A New London Tpke.
Glastonbury, CT 06033-2038

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