Business Risk or Insurable Exposure?

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Knowledge Knugget, 8/14/2008

Recently, I’ve been seeing increasing requests for coverage for activities that would not typically be considered professional services. Of course, with the growth of Miscellaneous E&O/Professional Liability beginning about 10 years ago, the line between “professional”, “errors and omissions”, and “uninsurable business risk” has become increasingly blurred.

Here are some pointers for identifying a potential errors and omissions exposure for which coverage might be available:

Can your insured’s activity result in financial loss to a third party (your insured’s customer, or client of the insured’s customer)?

Is your insured performing a service?

Can you think of a way that service can be defined and its potential to cause financial loss anticipated?

Can a loss occur due to an error or omission, versus the typical “occurrence” or “accident” that gives rise to a GL claim?

Can the service that could result in financial loss be isolated from the core services covered by GL?

Can a rating basis be allocated to such service?

If you can answer most of the above questions “yes”, it’s possible there’s an insurable “professional” service in your insured’s operations.

There are some carriers willing to be very creative in this marketplace. Although some are stuck in the “that’s a business risk” mentality and will not consider cutting edge coverages, others will rub their chins, put their thinking caps on and come back with “yes, we can do that”. Then it’s merely a matter of matching up the carrier’s desired pricing with the insured’s sensitivity to risk.

Sometimes insureds are unaware of these exposures or just assume they cannot be covered. Many formerly “uninsurable” business risks are now covered under the common D&O policy with entity coverage. Others can be insured with an appropriate errors and omissions policy. The scope of coverages available is constantly expanding, so don’t be afraid to ask about these exposures.

Some examples:

Picking and packing exposure of a distributor
Freight forwarding exposure of a manufacturer that exports their own goods
Third party exposure for owned real estate sales or property management
Concept artist for playground equipment (not a design professional)

Updated: December 31, 2008 — 8:33 pm

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