Who Needs Errors and Omissions Insurance?

9975002Errors and omissions insurance (E&O) is a type of professional liability insurance that protects companies and their workers, or individuals, against claims made by clients for inadequate work or negligent actions. Errors and omissions insurance often covers both court costs and any settlements up to the amount specified by the insurance contract.

E&O insurance covers situations that traditional liability insurance policies do not cover. People should have errors and omissions liability insurance if they provide a service for a fee. If they don’t perform the service correctly or don’t deliver on time, the effects could cost a client. In these cases, E&O insurance coverage is essential.

Insurance Agent Scenario

Karen Jones is a licensed insurance agent who places her own auto coverage through the agency in which she works. The agency owner doesn’t know that Karen also places vehicles owned by her relatives on her own auto policy because the agency waives commissions for employees. When one of Karen’s uncle’s vehicles is stolen and he files a claim, the auto insurance carrier denies coverage because Karen Jones, the insurance agent and named insured, does not have an insurable interest in the vehicle. The carrier rescinds coverage back to inception for the vehicle.

What happens when Karen’s uncle brings an Errors and Omissions (E&O) claim against the agency?

Scenario Answer:

The E&O carrier would consider this a liability claim and pay Karen’s uncle. However, the agency not only has to pay its deductible, but also must live with this claim on its loss history. It’s likely that Karen’s employment will be terminated and that she will lose her insurance license. In the future, the agency owners will remind employees who purchase coverage through the agency must purchase that insurance through another employee—who has no interest in covering the property—who will manage the account.

Coverage Varies by Company

Insurance agents and brokers, registered investment advisors, financial planners and other financial professionals can obtain E&O insurance. Regulatory bodies, such as the Financial Industry Regulatory Authority (FINRA), or company investors often require E&O insurance. The benefits an E&O insurance policy provides can vary greatly depending on the policy and issuing insurance company. E&O insurance may, or may not, cover temporary employees, claims stemming from work done before the policy was in force, or claims in various jurisdictions.

As an insurance agent or broker shopping for E&O insurance for your clients, remember that not all policies are created equal. E&O coverage is based on the client’s needs, risk level, and business budget.

Liability limits and deductible amounts will vary between insurance providers. And, some policies might exclude certain coverage types. To find the right policy, get quotes from multiple insurance carriers and compare terms. Make sure you understand all parts of the policy before presenting it to your client.

Want to know more about E&O coverage? Check out our Errors and Omissions offering in our Insurance Continuing Education Course Catalog.

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“Do I Really Need Flood Insurance?”

Floods are the nation’s most common and costly natural disaster and cause millions of dollars in damage every year. Floods cost America, on average, $8.2 billion each year (according to 2015 data). Whether people end up having to repair or replace their building and or its contents from just one inch or several feet of flood water in your home or business, recovering from flood damage is expensive!

Most homeowners’ and renters’ insurance policies do not cover flood damage, so it is important to talk with your clients to explain what flood insurance policies cover. As an insurance agent, you can help them understand why flood insurance is an important asset to their financial security.  If they don’t already have a flood insurance policy, you can help them buy providing a quote.

What’s Covered?

The cause of the flooding matters. Damage caused by a sewer backup is only covered by flood insurance if it’s a direct result of flooding; the damage is not covered if the backup is caused by some other problem.

Contents and building coverage are purchased separately (for the Preferred Risk Policy, there’s an option for combination coverage for both contents and building coverage), but there are always separate deductibles. Unless your insured has contents coverage, flood-damaged contents are not covered.

Deductibles

Deductibles apply separately to building and contents with different options available.  As with other insurance plans, a higher deductible will lower the premium but will also reduce the claim payment, meaning insureds will need to cover the difference out of their own pocket. Sometimes a mortgage lender will set a maximum amount for the deductible.

Some People Have to Buy Flood Insurance

Homes and businesses in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance. While flood insurance is not federally required if people live in a moderate- to low-risk flood area, their lender may still require them to have insurance.

If your insureds live in a high risk flood zone and they have received federal disaster assistance in the form of grants from FEMA or low-interest disaster loans from the U.S. Small Business Administration (SBA) following a Presidential Disaster Declaration, they may be required to maintain flood insurance in order to be considered for any future federal disaster aid.

Want to know more about flood insurance? Check out our Flood Insurance Made Simple continuing education course found in our Insurance Continuing Education Course Catalog.

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“Did I Tell You I Have a My Own Business at Home?”

As an insurance agent, you want to make sure that your clients have the coverage for every foreseeable loss that could affect their financial future. Most people know they should have homeowners, renters, or auto insurance, but they might not know that they need additional coverage if they’re babysitting or doing freelance contract work at home. In the last few years, there has been an increase in the number of home-based businesses. This trend has led to an added group of endorsements that focus on these loss exposures.

Home Business Insurance Coverage (HO 07 01)

Most business-related exposures are excluded or limited under the unendorsed homeowners form. The endorsement provides substantive increases in coverage for certain home business loss exposures. The home business must meet the following four criteria to be eligible for coverage under this endorsement:

  • It must be owned by (a) the named insured, or (b) a partnership, joint venture, or other organization that is composed only of the named insured and resident family members.
  • The business must be operated from the residence premises, which is primarily used and designed for private residential purposes.
  • The business can have up to three employees but cannot produce gross annual receipts over $250,000. Larger businesses need to be insured under the appropriate commercial coverage forms, such as the Business Owners Policy (BOP).
  • The business cannot involve the (a) manufacture, sale, or distribution of food; and (b) manufacture of personal care products and the sale or distribution of these types of products. However, the exception concerns a business involved in the sale or distribution of nationally recognized personal care products (e.g., Avon) manufactured by a reputable company.

This endorsement provides business property, business income, extra expense, personal liability, and medical payments coverage. Additional business property covered includes accounts receivables and valuable papers and records.

Business Pursuits (HO 24 71)

This endorsement may be attached to a homeowners policy to provide coverage for the liability of an insured arising out of business activities, other than a business of which the insured is sole owner or a partner. Eligible business pursuits include clerical office employees, salespersons, collectors, messengers, and teachers (who have the option of including liability coverage for corporal punishment).

Home Business Insurance Coverage (HO 07 01)

This endorsement is quite extensive, with the structure of a self-contained policy. It provides both property and liability coverage for losses related to a described business that is operated in the insured’s residence or other structure, such as an unattached garage, that is located on the residence premises.

Home Day Care Coverage Endorsement (HO 04 97)

This endorsement provides modest property coverage as well as day care liability protection. If your insureds care for children or the elderly in your home, they need this specialized coverage.

Special Computer Coverage (HO 04 14)

This endorsement provides coverage for computers on a “broad peril” basis (subject to some exclusions—and there is no business exclusion) instead of a named peril basis if your insured’s work depends on technology.

Want to know more about ways to cover your clients’ home businesses? Check out our  Homeowners Insurance Made Simple in our Insurance Continuing Education Course Catalog at www.fastrackce.com.

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What is a Work-Related Injury?

insurance continuing educationWorkers’ compensation benefits are provided if the injury, death, or disease arises out of and in the course of employment. Where coverage applies depends on where the employee works.

  • If an employee has a fixed place of employment, benefits will be provided for injury, disease, or death while at that location.
  • If an employee, such as a salesperson, has no fixed location, the employee may be covered from the time he or she leaves home until he or she returns home.
  • When a traveling employee checks into a hotel, motel, or into another temporary residence, he or she establishes a “home away from home.” When the employee checks into the temporary residence, he or she is considered to have left the work environment. When the employee begins work each day, he or she re-enters the work environment.
  • Benefits may be available to an employee while not working if the activity is construed as promoting the employer’s goodwill and interest.

The courts have distinguished between work-related injury versus illness and recreational injury. Let’s look at some examples.

Workers’ Compensation Scenarios

William is employed by ABC Construction Company. While working on a new building, William falls from a ladder and breaks his leg. Because the injury occurred while William was performing his job, ABC’s workers’ compensation insurance carrier will cover the medical bills and lost wages from this incident.

Two years later, William is playing in a baseball game at ABC’s annual picnic. He breaks his leg sliding into home plate. This time, the injury arose outside the course of employment; therefore, the workers’ compensation insurance carrier will not cover the loss.

ABC Construction Company holds a charity event to raise money for the local hospital. The owner tells William he must volunteer to sell tickets for one the carnival rides that will be at the event. While he is setting up a booth, William breaks two bones in his left hand when the booth falls on him. ABC’s workers’ compensation insurance carrier will cover the medical bills and lost wages from this incident because the activity is construed as promoting the employer’s goodwill and interest.

Limitation on Benefits

The individual state laws may limit the amount of benefits that employees are entitled to receive to compensate them for their work-related injury or illness. Each state has its own rules for how an injury should be compensated. Some states have a list that affixes a dollar amount for the type of injury. Other states mandate that compensation is based on a scale or rating of injuries or disabilities.

Want to know more about workers’ compensation? Check out our Workers’ Compensation Made Simple in our Insurance Continuing Education Course Catalog.

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Long-Term Care Benefit Triggers

When LTC policies were introduced, insurers frequently required at least three days of prior hospitalization or skilled nursing home stays before the LTC policy benefits were “triggered.” Although most LTC policies require a physician’s certification that nursing home care is required because of illness, injury, or medical emergency, most polices no longer require hospitalization.  Continue reading

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