In November 2020, participants in the Professional Liability Underwriting Society's first virtual conference ever warned insurance brokers that they should expect bureau errors and omissions (E&O) claim that they increase significantly in size and frequency in 2021
FIRST CATASTROPHIC TRENDS: E&O REQUIRES A LAGGING INDICATOR OF WHAT IS COMING
When we look at claims trends, there is generally a delay of 12-24 months from the time the exposure occurred to when E&O claims are filed. In fact, as history has shown, it is not uncommon for the industry to experience a sharp increase in R&D allegations against brokers for several months or even a year or more after a catastrophic event. The reason? Once a major crisis has passed and people's lives begin to normalize, common claims usually enter the final stages of treatment. At that point, it is more likely that the insured will contact their broker with tough questions, such as what their policy will cover and will not cover and deal with details of damages settlements and denials – all of which can trigger E&O allegations. RELATED E&O REQUIREMENTS
We recently passed the first anniversary of COVID-19 in the United States. As recovery efforts are slowly beginning and based on lagging indicators from past crisis events, experts predict the bulk of first-party claims will be conjured up through the claims process over the next few months. When the final decisions are made, the carriers expect a swarm of new E&O claims – perhaps even more than what has happened before. Why? Mainly because unlike notable crisis events like Hurricanes Katrina or Sandy, the pandemic was not limited to a single geographic location. This, combined with emerging pandemic-related coverage and damages scenarios that the industry does not usually experience, has led to several allegations by policyholders against their brokers and in some cases from brokers against their agents. According to MyNewMarkets, accusations against E&O claims agents usually include failure to obtain (or misrepresentation of) coverage, failure to process claims in a timely manner, and failure to properly identify exposures and recommend appropriate coverage. For operators who take out large volumes of E&O insurance, COVID-19-related E&O claims are likely to be attributed to brokers who are alleged to have failed to advise insured persons on what their current insurance does not cover as well as not recommending coverage. which policyholders should have been advised to buy. At present, COVID-19's main E&O issue is primarily property-driven, with a focus on business break-related disputes with brokers, along with other operational coverage issues.
As of March, U.S. companies have filed nearly 1,500 COVID-19-related lawsuits challenging insurers that denied business interruptions and other claims, according to the UPenn Litigation Tracker.
AN EVEN HARDER HARD MARKET
For the insurance industry, harsh market conditions have been a catalyst for transport companies. to increase premiums, avoid certain risks, reduce coverage limits and increase exemptions. Historically, these terms have also increased disputes and refusals of damages, which has led to a higher number of E&O claims against brokers. Today's combination of tough market conditions and COVID-19 creates even more challenges as pandemic-related exceptions, limits and complementary applications are added in almost all industries – including E&O insurance. These factors have put brokers in a situation where they will need to communicate new policy changes to clients who are already frustrated by COVID-19 restrictions, and this may also increase the likelihood of a professional liability claim. market conditions and COVID-19 create even more challenges as pandemic-related exemptions, restrictions and complementary applications are added in almost all industries – including E&O insurance.
WHAT EXPECT THE COMING MONTHS
- start adjusting and defining policy language in most product lines, which makes it crystal clear that pandemics are not considered a covered loss, ie. to add restrictive exemptions for claims related to communicable diseases such as COVID-19.
- Complementary applications on products not required before the pandemic are likely to follow most insurances as insurers determine COVID-19 related exposures.
- Business interruptions n claims that exclude business loss due to viruses or bacteria will continue to create legal challenges.
- Brokers who take the obligation to report claims and potential claims on behalf of customers versus the customer who directly reports a claim to the carrier will continue to be exposed to additional debts.
- Customers continue to look to their broker to find out if they have a potentially covered COVID-19 related loss.
- Claims denied by carriers will continue to give rise to E&O claims that the broker failed to obtain adequate coverage.
- States will require brokerage firms to file all claims and potential claims – whether or not a broker believes there is coverage for a loss.
- Severe market conditions are likely to exacerbate the challenges facing companies already facing financial issues and may lead to political failures or cancellations.
- Soft market improvements will be remo wood, such as:
- Total deductible caps
- Defense outside borders
- First dollar defense
- Insolvency exemptions will be added, related to placements specific to each agency (ie non-ranked operators, state-aided funds and operators below A.M. best B + ratings). Soft market conditions over the last ten years have facilitated the implementation of these derogations, and in some cases these derogations have been completely removed.
- Transport companies will reduce capacity, further increase premiums and make it difficult to maintain existing coverage limits.
- The premium will increase drastically, while the coverage conditions are further limited.
Agents & Brokers E&O snowballs roll downhill and may become even larger in the coming months as the limits, terms and conditions of the agency's E&O policy are put to the test. Even if it can not be stopped, brokers who understand what to expect will better address some of the tougher concerns of their clients, including if no coverage exists or coverage is insufficient. The point is that it is impossible to avoid all E&O problems. However, a risk management plan that includes a comprehensive E&O insurance coverage program placed by a space specialist specializes in minimizing the financial impact of a lawsuit due to errors and / or omissions of agents and brokers.
CONTACT  STEVE VALLONE
Senior Vice President & Broker
Direct: (415) 625-1277 | Cell: (925) 588-9250
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