How to Choose Your Agency's
Errors & Omissions
Three days. That's how long the driver had been
working for his new employer, a trucking company. His truck was solid—no
mechanical issues at all. Unfortunately, you could not say the same
for the trucker. He had been on the road since 5 a.m., so when he came to a
highway slowdown at 7 p.m. due to construction and a work lane closure, the
driver was slow to react.
He struck the rear of a Toyota Prius at an estimated
78-82 m.p.h. which set off a chain reaction that included seven other
vehicles holding a total of eighteen occupants. One of the vehicles caught
fire, killing its driver and three passengers. Two more people were killed
and four were injured.
The accident happened due to driver fatigue and
methamphetamine use, according to the National Transportation Safety Board,
which included the failure of the pre-employment screening process—the
driver had four wrecks in the preceding three years—as a contributing
The trucking company had just $1-million limits to
address this claim, while the insurance agency, which allegedly had assumed
responsibility for screening drivers, had $5 million in coverage both per claim and
in the aggregate—to defend the resulting E&O claim.
The initial demand from all parties totaled more than
$150 million. That begs the question: Was $1 million enough coverage for
the trucking company? Was $5 million enough for the insurance agency that
placed that policy?
The answer to the latter depends on the nature of the
customer. The more valuable the property where coverage is placed and the
higher the potential liabilities faced by an auto or commercial general
liability customer, the larger the potential for an excess of limits
Large claims happen more than you realize, and yet,
they are only part of the story. With a $5-million aggregate limit in
place, most insureds believe they are unlikely to be overcome by a series
of small, unrelated claims in a single policy period. There is some truth
to that but some peril, as well.
A significant scenario leading to an uncovered excess
exposure is a series of claims stemming from a single catastrophic event.
When Hurricane Harvey struck the Houston area, an estimated 1 million cars
and trucks were destroyed. When an agency places a significant quantity of
homeowners, auto or trucking coverage in the path of a storm, they could
see a lot of claims for missing or inadequate coverage and failure to
recommend adequate flood/wind coverage.
With these considerations in mind, a thorough analysis
of your E&O limits should consider:
- The policy limits in
place for your largest customers because, if missing, those limits may
define the damage model in your E&O claim.
- The nature of the
customer's business, such as industrial, trucking, manufacturing and
larger companies that incorporate your customer's products and
services into their larger exposure.
- The number of insureds
located in close proximity to each other, which can set up the
potential for multiple catastrophe-related losses, creating a serious
aggregate loss exposure.
- And, most importantly,
the agency's risk appetite in the face of these perils.
You may have been lucky this year. The big claims and
big storms may have passed you by, so your current limits may have been
adequate. Then again, is 'may be' good enough for you, or is it time for a
Davis is a vice president and claims manager at Swiss Re Corporate
Solutions, working out of the office in Kansas City, Missouri. Insurance products underwritten by Westport
Insurance Corporation, Kansas City, Missouri, a member of Swiss Re