How comprehensive is your coverage? Why a limitation in your Errors & Omissions policy for negligence only is a very bad idea.
by Rickard Jorgensen, FCII, ACIArb., ARM
Recently one of our competitors relaunched and rebranded its Errors & Omissions program for Investment Advisers. The new program was promoted as broader coverage and an enhancement upon the previously terminated program. There were various “bells and whistles” added to the program but one important feature was conspicuously overlooked and omitted from marketing materials.
The policy contains a definition of a wrongful act as follows:
With respect to Insuring Agreement 1. Investment Adviser Professional Liability Insurance, any actual or alleged error, misstatement, misleading statement, negligent act or omission, or neglect or breach of duty by any insured adviser or its insured persons, solely in their capacities as such, in rendering or failing to render investment advisory services;
[Markel – MPL 0002 07 17]
Another competitor uses the following wording:
I. INSURING AGREEMENT
To pay on behalf of the Insured Damages and Claim Expenses including the Cost of Corrections, in excess of the Deductible, which the Insured shall become legally obligated to pay because of any Claim or Claims first made against any Insured and reported to the Underwriters during the Policy Period or Extended Reporting Period (if applicable), arising out of any negligent act, error or omission of the Insured in rendering or failing to render Professional Services on or after the Retroactive Date shown in Item 6 of the Declarations, except as excluded or limited by the terms, conditions and exclusions of this Policy.
[Beazley – FSEO 1216 ed]
and another insurer uses:
“Wrongful act” means any negligent breach of duty, error, misstatement, misrepresentation, omission, “publication injury’, or other negligent act done or attempted by an insured, or by any “individual” for whose acts the insured is legally responsible, in conjunction with the provision of covered “financial services”, as set forth in the Limitation of Coverage Endorsement, for the “client’ of a named insured or “representative’….. .
[Scotsdale- FNX-P-61 (12-07)7]
N.B. my italics and underline
The key word in the forgoing is “negligent.” This means the policy may not offer full tort coverage, and the policy may restrict coverage to negligence claims only.
This limitation is not unique. Several leading insurers offer this restrictive form of coverage.
However, the leading Errors & omissions program for Wealth Advisers, AdvisersGold™, does not contain this limitation but merely relies upon the definition of covered act:
8.7 Covered Act means any actual or alleged act, error, omission or Personal Injury committed by you in the rendering of or failure to render Professional Services after the Retroactive Date.
But what does this mean? In plain terms if your policy contains the word negligence in the definition captioned above, then a range of other legal wrongful acts (i.e. other torts), alleged fraud, intentional acts and breach of contract are NOT covered.
This is important because we have seen many cases where Advisers have been sued and the papers filed often contain allegations of a broad range of wrongful acts.
By way of contrast, since 1999 AdvisersGold™ has consistently offered comprehensive protection for covered acts by way of the foregoing definition in the policy.
Review your current policy before this becomes an issue and you are left with no, or partial, coverage for a claim. DON’T ACCEPT negligence only coverage.
Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the AdvisersGold™ program and may be contacted at (201) 345 2440 or firstname.lastname@example.org