Figures: A Rogue's Gallery of Severe Claims
No agency wants to commit an
error or omission that results in a huge E&O claim. Likewise, no
E&O carrier wants to receive an E&O claim that results in a large
But these claims happen, and many
of the worst ones—those in excess of $1 million—come from the same lines of
business and involve similar types of errors.
Leading the way in 2006-2018,
commercial general liability claims comprised about 23% of E&O claims
with payments in excess of $1 million and about 30% of claims with payments
in excess of $2 million. Here are a few examples:
· $5 million in losses on a claim
alleging the agent missed an exclusion in the underlying policy placed for
the manager of a large construction project at a power station. An
explosion killed six workers and injured 55 more, in addition to causing
property damage to 33 nearby homes.
· $2 million on a claim alleging
the agent failed to place a policy that included coverage for faulty
workmanship for the developer of a condo project.
Commercial property claims made
up about 17% of $1-million E&O claims. Since commercial property policies
on high-value real estate involve high limits, an alleged error or omission
can cost millions of dollars:
· A settlement of more than $3
million for the agent's alleged failure to place wind coverage for a large
· A settlement of $2 million, on
top of $700,000 in defense costs, when a claim proceeded to trial against
an agent for alleged failure to place blanket coverage for a sportswear
Placement of auto and trucking
policies resulted in about 14% of the larger E&O claim payments:
· More than $1 million in losses
and defense costs for a claim alleging the agency assumed responsibility
for hiring the plaintiff's drivers when it undertook the task of obtaining
· A settlement of $2.5 million
for injuries to the insured's employee when the agency allegedly failed to
place non-owned auto coverage for a high-end vacation rental company. The
employee suffered double leg amputations in an accident that occurred while
driving her personal vehicle for work-related purposes.
· A settlement of more than $4
million on a claim alleging the agency bound coverage for nightclubs in
violation of underwriting guidelines and failed to include assault and
battery exclusions on the policies.
· A settlement of $1 million for
the agent's failure to place the assault and battery sublimit on a binder.
· A settlement of $1.7 million
for the agency's failure to timely notify the CGL carrier of an underlying
claim against an apartment complex involving the fatal shooting of a mother
and her three surviving children.
· A settlement of $1.4 million
for a claim alleging the agent failed to timely notify the underlying
excess carriers of a $12-million judgment for a lead poisoning case against
the insured apartment complex.
· $1 million for a claim alleging
the agent improperly classified the operations of a street cleaner and
failed to advise of an exclusion for operations on the open road, leaving
an uncovered fatal injury.
· A settlement of more than $2.2
million for an error on the application regarding prior claims and the
number of vacancies in an apartment complex, which later suffered a total
· A settlement of $2 million from
the agent's alleged failure to advise of the wind and hail exclusion on an
excess policy issued to a large professional office building.
· A settlement of $2.2 million
for a claim involving inadequate business income limits for a manufacturer.
· A payment in excess of $10
million for a claim involving failure to secure blanket business interruption
coverage for business interruption for a marina.
· A settlement of $1.3 million
for the agent's listing of a car on a business auto policy that was not
owned by the company, but rather registered under the name of the owner's
son, resulting in denial of coverage by the underlying auto carrier for two
serious head injuries.
· A settlement of nearly $1.8
million on a claim by the underlying auto carrier against the agent
alleging that they were required to pay $5 million for two car accident
fatalities and an injury claim caused by a driver who was not intended to
be listed on the client's commercial auto policy, due to the agent's
failure to include "Sr." after the name of the intended insured
on an endorsement.
· A settlement of $2 million on a
claim that the agency should have advised their client, a party bus
operator, that they were required to obtain at least $5 million in limits
as a motor carrier pursuant to Federal Regulations.
Placement of bonds, meanwhile,
resulted in about 13% of larger claim payments:
· A settlement of $2 million on a
claim that an agency issued payments and performance bonds for a
construction project without the surety's authorization.
· A settlement of $1.9 million on
a claim that the agency failed to obtain preauthorization from the state
for the client to bid on large state highway projects.
Workers compensation coverage
resulted in about 9% of larger claim payments, with the worst involving
serious underlying injuries such as brain injuries and paralysis, or even
death. In many cases, the E&O carrier was required to step in for the
workers comp carrier and provide the missing coverage, with several
settlements ranging from $1-5 million.
In some states, even if you are
able to settle the workers comp claim, you may be required to pay
continuing medical for the rest of the claimant's life.
Although placement of excess and
umbrella policies comprised only about 6% of seven-figure E&O claims,
the exposure for these claims can be quite significant. In one such claim,
failure to obtain a follow-form policy required a $16-million settlement.
Similarly, placement of
professional liability coverage also results in about 6% of the most severe
claims, such as one in which failure to secure an extended reporting
period' for an obstetrician resulted in an uncovered claim for birth
injuries and a $1.1-million settlement.
In another claim, an agent's
failure to place E&O coverage for a tax service resulted in an $800,000
settlement, plus $245,000 in defense costs.
Are coverages not listed above
inherently E&O-safe? Hardly. Any line of business can vie for the
dubious honor of making it onto this list.
Caryn Mahoney is an assistant
vice president, claims specialist with Swiss Re Corporate Solutions and
works out of the Chicago office. Insurance products underwritten by
Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss
This article is intended to be
used for general informational purposes only and is not to be relied upon
or used for any particular purpose. Swiss Re shall not be held responsible
in any way for, and specifically disclaims any liability arising out of or
in any way connected to, reliance on or use of any of the information
contained or referenced in this article.
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