17 - 1Copyright 2008, The National Underwriter Company Professional Liability/Errors & Omissions Insurance  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 Chapter 17 Risk Management For Financial Planners

17 - 2Copyright 2008, The National Underwriter Company Professional Liability/Errors & Omissions Insurance  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 Chapter 17 Risk Management For Financial Planners

17 - 3Copyright 2008, The National Underwriter Company  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 Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance

17 - 4Copyright 2008, The National Underwriter Company  Disadvantages  Cost  May be difficult to obtain  Forms differ from company to company so a careful reading of policy provisions is essential Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance

17 - 5Copyright 2008, The National Underwriter Company  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 Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance

17 - 6Copyright 2008, The National Underwriter Company  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 Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance

17 - 7Copyright 2008, The National Underwriter Company  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 Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance

17 - 8Copyright 2008, The National Underwriter Company  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 Chapter 17 Risk Management For Financial Planners Professional Liability/Errors & Omissions Insurance