Corporate Coverage vs. individual Coverage

 Do I need corporate E&O coverage? It’s a question we receive frequently from our clients and more recently there has been a lot of misinformation floating around Agent networks.  As you know insurance is not always simple, but we will often start this conversation by applying a simple 3 step test, could you answer NO to the following:  

  1. Do you have licensed employees working for your firm?
  2. Do you have other agents placing business through your firm?
  3. Have you ever had licensed employees, or other agents placing business through your firm.

In short, if you can answer NO to all of the above, in our view there is no need to purchase a separate E&O Policy.  As you are an owner operator your coverage will extend to your corporation provided you are the one triggering the claim.

However, if you are incorporated and have ever had licensed agents placing business through your corporation, whether they are employees or not, you need corporate E&O coverage.

At First Durham Insurance & Financial Brokers LTD. we are experts in the Life Agent and Agency E&O space.  Furthermore, our provider of choice, Westport Insurance Corporation, is the preeminent provider of E&O insurance for Agents and Brokerages in North America.  Their coverage is broad and their experience is unparalleled in our view.  Westport provides a broad range of options for Agencies, at a price that you can afford.

How your individual E&O coverage works – In simple terms

Currently you likely have an individual E&O policy. In this policy there is coverage for your corporation for Errors made by you and or your unlicensed support staff. However, there is no coverage for your corporation when any claim arises from the actions of anyone else. And if you have ever had an agent place business through your company, individual coverage is severely inadequate.

Won’t the policies my agent’s purchase protect my Corporation?

In many cases there is coverage for your corporation from the policy of the agent who triggered the claim, this is known as “Vicarious Coverage.” However, there are many factors outside of your control that can impact this coverage extension. You would likely be unaware that your corporation is not protected until after a claim has been filed. Take for example an agent who retires, or leaves the business, or worse, coverage is not available at claim time as the agent failed to pay a policy premium or, unbeknown to you, committed a fraudulent act. There are many scenarios common in today’s marketplace, and regardless of the cause, the result is always the same. Your corporation is left picking up the costs.

Why is relying on the coverage of my agent force not sufficient?

It is not uncommon to see both Agencies and MGA’s relying on the “vicarious coverage” of its agent force. In our opinion this solution is much like playing Russian Roulette. This is because the fate of your corporation depends on the coverage of an individual over whose actions you have no real control. A few common areas where you are left with an uninsured exposure are as follows:

  1. An agent retires, leaves the business or moves onto another provider - Transactions an agent makes today will likely not give rise to a claim for 3 – 5 years, maybe more. Currently you likely require proof of insurance from all of your agents. However, when an agent no longer deals with your firm you have no knowledge if an agent has maintained their coverage. Every time this occurs, a lingering liability exposure rests in your lap. If at the time the claim is made and it is determined an agent no longer has adequate coverage, your corporation will likely be left paying the costs associated with the claim.
  2. An agent may do something to jeopardize their own coverage – Whether it be a failure to pay premiums, having a gap in coverage once their policy dies, any coverage you may have had dies with it. Of greater concern what if an agent maintains coverage but does something that voids their coverage after a claim has been presented such as not disclosing a material fact on their application or committing a fraudulent act.
  3. Agents may buy limited coverage – As the purchasing decision is left up to the agent, there is no guarantee that they purchase a policy with the appropriate “vicarious coverage.” like you have done. They may perhaps take a policy that is the least expensive and not do a thorough coverage investigation before buying the policy.
  4. Claim Made directly to your corporation – If there is no individual named in the statement of claim and just your corporation, your corporation will be on its own to pay any claims. Although uncommon, a likely cause may be that several years had passed since the original purchase and the consumer no longer remembers the agent but recalls your corporate name and sues you directly.

What Coverage is Available to My Corporation?

Today Currently we offer a true corporate solution that is broad, widely available and affordable. Not only to the smaller agency but right up to the large MGA. Some of the key coverage’s available under this policy are as follows:

  • Limits as high as $5 Million available
  • Coverage can be written to include owners, officers and directors of the corporation
  • Full prior acts available
  • Defense costs exclusive to policy limits
  • Variety of deductible options

For a no obligation quote, please take a few moments to complete an application and fax it to our attention. The application form can be found on our website at (LINK TO CORP APP). If you wish to discuss this or any other insurance matter, please do not hesitate to contact me directly by phone or by email.

Bryan Yetman, CIP, CRM
Vice President of Operations
Phone: (905) 427-5888, Ext. 122
Toll Free: 1-800-387-4189
Fax: (905) 427-4615
Email: b.yetman@firstdurham.com