Professional Liability/Errors & Omissions Insurance

1. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • What is it? • Individual’s or organization’s failure to use due care and the degree of skill expected • Higher standard of care than that of general liability exposures

2. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Business uses • Available for a wide variety of professional categories • Examples - Physicians, hospitals, clinics, nurses, accountants, actuaries, insurance agents, veterinarians, architects – to name a few • What constitutes a “professional” • High degree of specialized training • Licensed by a governmental board or entity • Operates under a code of ethics that is above that of the general service sector • Emphasizes social responsibility • Operates under a disciplinary system that sets licensing requirements

3. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Advantages • Funds exposures not covered by commercial general liability insurance (CGL) • Covers financial damages, which are not covered by CGL • Covers “failed to perform” claims, not covered by CGL • Insurance companies may offer specialized professional liability error prevention training and guidance • Professional liability insurance may be required before a professional can be licensed

4. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Disadvantages • Cost • May be difficult to obtain • Forms differ from company to company so a careful reading of policy provisions is essential

5. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Design features • Occurrence or claims made forms • Occurrence – the event that triggers coverage on an insurance policy • Occurrence based policy • Covers injury or damage that occurs during the policy period even if the claim is not brought until months or even years after the event • Claims-made policy • Responds only to claims for injury or damage that are made during the policy period

6. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Design features (cont’d) • Types of injuries and damages • Not restricted to injury caused by an occurrence (accident) • Injury encompasses • Bodily injury • Property damage • Personal injury • Humiliation • Invasion of privacy • Slander

7. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Design features (cont’d) • Representative types of injuries and damages (cont’d) • Lawyers liability • Covers damages because of “any act of omission” • Excludes bodily injury and damages to tangible property • Principal exposure covered is “monetary loss” attributable to the insured’s malpractice • Also covers libel, slander and humiliation

8. Professional Liability/Errors & Omissions Insurance Chapter 17 Risk Management For Financial Planners • Design features (cont’d) • Representative types of injuries and damages (cont’d) • Hospital and physicians liability insurance • Originally issued on a per claim limit of liability and an aggregate limit of liability • 1977 – Modified from introduced with a “per medical incident” limit • Purpose was to eliminate the full limit of liability for each of the several claims that result from a single act • Forms traditionally required the insured's written consent before settling • This feature not carried forward to most of today’s forms