E&O Tip on “What Enough Coverage”

Is $1,000,000 enough coverage? The issue of "the proper limit" is a common question asked by agents. Unfortunately, this is not an easy question to answer as there is no magical formula to determine the proper limit. A philosophy that has been voiced over the years speaks to "the more E&O limits you have, the more that you can be sued for". In other words, if the plaintiff’s attorney discovers that you only have a $1,000,000 E&O limit, they will limit the amount of the suit against your agency to only $1,000,000. Bottom line, I don’t buy it. Actually, over the years, there have no doubt been many E&O claims where the amount of the suit was more than the limit on the Agents E&O policy. Even if those claims were settled within the E&O limit, for the owners of those agencies, this still had to be a very scaring experience. Not only did they have to secure their own attorney for the "excess demand" aspect of the litigation but they also were potentially facing the loss of their agency if their E&O limits were not sufficient. Why would an agent only buy $1,000,000 limit? Possibly they thought that this limit would be sufficient considering the size of their agency or the type of business they wrote. There is actually no correlation between the size of the agency and the potential size of an E&O claim. This is primarily due to the fact that the # 1 cause of agents E&O claims is "what you failed to provide", not what you did provide. One other issue on the matter of E&O limits. Actually with E&O policies, there are two limits; the first is the "per claim" limit; the second is the "aggregate" limit. If an agency has limits of $1mil / $3mil, they have a max of $1mil of coverage for an individual claim and a max of $3mil for all claims made against them during that policy period. What if the limits were $1mil / $1mil, in other words, the "per claim" and the "aggregate" were both $1mil? The downside of this is that if the agency gets hit with an E&O judgment of $1mil, they have exhausted their limits. ALWAYS look to have the "aggregate" limit be a multiple of the "per claim" limit. The additional premium is much less than you may think. Also, have more than a $1,000,000 E&O limit because $1,000,000 is not enough!


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