Errors and Omissions insurance (E&O) is a unique form of professional liability insurance designed to protect law firms and title agencies against damages or the costs of defending lawsuits arising from errors or omissions in the performance of professional duties. An E&O policy often covers court costs, attorney fees, administrative costs for handling case files, and any settlement or judgment up to the amount specified by the insurance contract.
If you’re looking to purchase an E&O policy, it helps to know the terminology associated with this type of policy. Below, we’ve put together a legal professional’s guide to attorney E&O policy terminology. By no means is this a complete list of all terms used for legal malpractice insurance, but it provides a good introduction to the language used in most E&O policies.
Claim
An express, written demand for services or money as compensation for civil damages arising out of an act or omission in the performance of professional services.
Claims Made & Reported Policy
A type of policy that provides coverage for a claim made against the insured and reported to the insurer, while the policy remains in force. The wrongful act upon which the claim is based must have occurred on or after the retroactive date set forth in the policy. If a claim is made after the policy period, it is not covered even if the incident that gave rise to the claim took place during the policy period.
Retroactive Date
Also referred to as the prior acts date, the retroactive date is a feature of claims-made policies that represent the date from which you have held your E&O policy or a date in the past from which your insurance provider has agreed to cover you. Claims that arise from services provided prior to the retroactive date will not be covered by your policy.
Cancellation
The termination of a policy by the Named Insured or the carrier prior to the expiration of the policy term. Acceptable reasons for cancellation of legal malpractice policies by the carrier include fraud or material misrepresentation, non-payment of premium, revocation of the attorney’s license, mutual consent of the parties, or an increase in the hazard against the Named Insured.
Deductible
The amount the insured must pay out pocket before the insurer pays up to its policy limits as provided under the coverage provisions. Within the realm of E&O insurance, there are four main deductible options: Loss and Defense Per Claim Deductible, Loss and Defense Annual Aggregate Deductible, Loss Per Claim Deductible, and Loss Only Annual Aggregate Deductible.
Aggregate Limit of Liability
The total amount past which the carrier is no longer required to pay for covered claims in a given policy period.
Per Claim Limit of Liability
The maximum amount that can be paid for losses and/or expenses for each claim made and reported under the E&O policy during its term.
Claims Expense Inside Limits (CEIL)
Under a CEIL or eroding policy limit, all defense expenses, including costs for report filing, court, investigation, and attorneys, come directly from your policy limit, reducing or eroding the available insurance protection under the limit of liability.
Claims Expense Outside Limits (CEOL)
CEOL splits the coverage available into the CEOL limit (for legal costs alone) and the primary limit of liability (for settling damages or monetary obligations).
Named Insured
The person or entity specifically named in the policy.
Policy Period
The term of duration of the policy. It encompasses the exact date of policy inception and the date of expiration, termination, or cancellation.
Exclusion
A restriction on the E&O policy excluding coverage for certain actions, people, or locations.
Indemnity Payment
Money paid to a plaintiff or claimant for alleged or adjudicated damages incurred after a claim is resolved.
Hammer Clause
A clause that allows the insurance company to compel the insured to settle a claim at a certain point. If the insured refuses to approve a settlement offer, the insurer will limit coverage to the amount of the proposed settlement. Any defense expense or judgment above the originally proposed settlement will be the responsibility of the lawyer.
Extended Reporting Period
Also referred to as Tail Coverage, an extended reporting period endorsement is a set amount of time to report claims caused by acts or omissions after a claims-made policy has expired or been canceled. If the policy is not renewed by the end of this period, it will lapse.
Professional Services
The scope of work performed for others by a lawyer in their professional capacity. Each E&O policy generally includes a description of the scope of professional services covered.
Reputation Protection Expenses
Fees and expenses for consulting services paid to a public relations or crisis management firm which the Named Insured may engage to limit the adverse effects of negative publicity against the Insured in the event of a covered claim.
Supplementary Payments
Special payments made by the carrier to the Named Insured to cover the costs of investigating claims and defending lawsuits. If the defense costs exceed the policy limits, the supplementary payments provision helps ensure that the Named Insured still receives coverage even outside of policy limits. One of the more common supplementary benefits provided under E&O policy is subpoena expense.
First Dollar Defense
An optional feature in some E&O policies, First Dollar Defense is a deductible that applies to judgments and settlements, not to defense costs. This means that the Named Insured will pay out of pocket only if they’re required to pay damages, while the insurer pays all claims expenses. If the claim is resolved with no indemnity payment, the insured will not pay the deductible.
Protect Your Law Firm with an E&O Policy
The cost of purchasing an error and omissions insurance for your practice is a necessary overhead expense. Should a costly error or omission be made, you’ll have something to protect your law firm against significant financial loss.
Contact Attorney’s First Insurance for E&O Insurance
At Attorneys First Insurance, we understand the unique demands of the practice of law and can provide comprehensive E&O insurance solutions to provide greater value for the coverage your law firm or title agency deserves.
Our insurance specialists are available to answer your questions and guide you through the insurance application or renewal process. Contact us today to get a quick quote and learn more about errors and omissions insurance in Florida, Texas, and many other states.
