E&O Claims | To Report, or Not to Report – That Is the Question

By: Judd Genda & Robert Procter | Axley Attorneys

One of the more frequent questions that we receive at the PIA Legal Hotline is whether an agent should report a potential claim to his or her E & O carrier. Usually, the facts are such that the agent likely did nothing wrong. The agent is worried about his or her loss history and the potential effect on premiums.

Reality check – do not be penny wise and pound foolish. First, to determine whether an agent needs to report a potential claim, the agent should review his or her policy. Second, the mere reporting of a potential claim will not automatically result in an increase in premium. It may, but it depends on more than simply reporting the potential claim. The downside to not reporting a claim can be far worse than a possible increase in premium. The failure to make reports of any wrongful acts, claims, suits, or circumstances that could reasonably be expected to result in a claim, may cause you to lose your E & O coverage. The subsequent failure to report these circumstances on a renewal application could result in rescission of your policy.

When determining whether to report a potential claim, you need to start by reviewing your policy. Every Insurance Professionals Errors and Omissions Liability Insurance Policy will specifically state when you need to report a potential claim. A typical policy will provide something like the following: “if during the policy period or any Extended Reporting Period, the insured first becomes aware of a circumstance, such circumstance must be reported to us as soon as practicable.” In this case, the term “circumstance” means “a proceeding, event or development involving a specific wrongful act by any insured which could reasonably be expected to result in a claim.” A “wrongful act” means any actual or alleged negligent act, negligent error, negligent omission, or personal injury arising out of the performance of professional services. Finally, a “claim” means a notice or summons of suit or a written demand seeking damages, professional services, or other remedy as a result of a wrongful act.

In other words, when you have knowledge of any actual or alleged acts or omissions that may lead to a claim against you, you must report it as soon as practicable. Even if the “alleged” claim has no merit, you still have the contractual obligation to report it. For example, a common E & O claim is the failure to recommend a coverage type. You may have notes in your file that establish that you discussed the different coverage types and that the customer indicated that the customer would get back to you. You may feel that the customer’s allegation has no merit because you can disprove it. Even if you can disprove the allegation, you still must report it if it could reasonably be expected to result in a claim.

The reality is that you will eventually be subject to either an E & O claim or potential claim. No one wants to be subject to an E & O claim, but you create far more risk to your agency by not addressing it head on—even if it has no merit.

Here are some of the best practices when you face an allegation that may subject you to a claim:

• Do not ignore it and hope it goes away.
• Review the language of your E & O policy to determine its reporting requirements.
• Report the potential claim as soon as reasonably possible.
• Do not try to settle the possible claim with your customer without involving the carrier.
• Do not admit liability.
• Do not agree to pay any expenses without your E & O carrier’s permission.
• CALL THE PIA LEGAL HOTLINE IF YOU HAVE ANY QUESTIONS ABOUT YOUR E & O POLICY AND YOUR OBLIGATIONS UNDER IT.

This information is provided for the convenience of PIAW members, but cannot be construed as legal advice. Members of PIAW may call (608) 200-4221, or email their questions to insurancehotline@axley.com, to work with an attorney and receive legal information specific to your situation.