By: Richard F. Lund, JD, Vice President and Senior Underwriter, Swiss Re Corporate Solutions

With yet more apologies to William Shakespeare.

As time changes, you may find yourself in the position where either you decide it is time to sell your agency, or you are on the other side and considering the purchase of an agency. In either case, something that must be considered by both the seller and the buyer is whether an ERP (extended reporting period), sometimes called “tail coverage,” should be purchased. Regardless of what you call it, the purpose is to provide coverage for errors and omissions that happen before, but the claim is made during a specified period of time period after, the date of sale/purchase.

Most, if not all, insurance agents errors and omissions professional liability policies are either “claims made” or “claims made and reported,” meaning that the claim must be made and/or reported WHILE the policy is in place. This is different than most liability policies that you are probably more familiar with, where claims are covered on an “occurrence” basis, in which case the insurance policy in place on the date of the underlying occurrence provides coverage.

The purpose of the ERP is to provide more time to report claims that could be made after the policy has expired, but still provide coverage for claims for wrongful acts that occurred during the original policy period. Let’s provide a few examples to illustrate different situations that could happen.

1. An insurance agent sells her agency effective on January 1. Their E&O policy expired on December 31 in the previous year. The agent purchased an ERP that will allow her to report claims for a three-year period after December 31. The agreement provides that all policies will transfer to the buyer on January 1. On January 20, the seller receives a demand letter (or a lawsuit) from a former customer’s attorney for alleged wrongful acts that occurred in November of the prior year. Because the seller had the three-year ERP, she can report the claim/demand/lawsuit to her E&O carrier, and it would be covered subject to the terms of the policy. She would be able to report the claim and any other claim during the three-year ERP period, but only if the error or omission occurred during the policy period before the effective date of the ERP.

2. An insurance agent sells his agency effective on January 1. His E&O policy expired on December 31 in the previous year. The agency did not purchase an ERP on his E&O policy. On January 20, the seller receives a demand letter (or a lawsuit) from a former customer’s attorney for alleged wrongful acts that occurred in November of the prior year. Since their policy expired on December 31 and no ERP was purchased, there would be no coverage for the claim. Note: If the claim was actually made during the original policy period, e.g., on December 31, it typically can be reported during a brief period specified in the policy – typically two to three months.

3. An insurance agent sells her agency effective on January 1. Their E&O policy expired on December 31 in the previous year. The purchase agreement provides that the book of business will roll to the purchaser at renewal. There is the potential for the book to have policies that will roll over for 12 months after the purchase. During this period, the seller may still be servicing the policies that have not renewed. In this case, the selling agency needs to maintain their E&O policy until such time as all policies have rolled to the purchaser and no further servicing will be done by the seller. Once all business has moved and all of the seller’s servicing responsibilities have rolled to the buyer, the seller should purchase an ERP that becomes effective concurrent with termination of the policy. If any claims occur after the date of sale, but before all policies roll over and their E&O policy remains in place, the claims would be covered under the terms of the policy as usual. Subsequent claims for errors/omissions that occurred during the policy period would be covered pursuant to the terms of the ERP.

4. Here’s the tricky one. The facts are just as in No. 1 above, but for some unknown reason, the selling agent is contacted by a former customer on February 20 (after the sale and transfer to the buyer) to take some action on behalf of the customer, which may be as simple as answering a question about coverages/limits. The selling agent takes the action requested by the customer, e.g., answers the question, but commits an error. At some later date, the customer makes a claim against the seller for the error. Because the policy expired on December 31, there would be no coverage for the claim. Why? The E&O policy itself expired on December 31. But what about the ERP? Why won’t that cover the claim? Because the policy only provides coverage for claims for wrongful acts while the policy was in place and active, and the acts occurred after the policy expired, there is no coverage for activities after that time, even though an ERP has been purchased. The ERP only provides the ability to report claims for wrongful acts while the policy was in place and active, NOT for acts after the policy has expired. Every inquiry, no matter how small or seemingly innocuous, needs to be referred to the buying agency that is now responsible for servicing that account.

Those are just a few of the potential ERP examples. Another frequent scenario is when the buyer and seller put their heads together and decide, “Hey, we can save a bunch of money if we skip the ERP and have [the buying agency] cover any claims!” Have you ever heard the phrase “penny wise and pound foolish”? That’s exactly what this is. Unless the buying agency’s E&O policy expressly accepts coverage for the selling agency’s errors and omissions, they probably will not be covered, regardless of any agreements made by them. E&O insurance carriers are not necessarily going to agree to accept those conditions. More importantly for both the seller and the buyer, that ERP cost represents the risk presented by years of possible errors & omissions that won’t come to light until after the sale. The selling agency doesn’t want to be “naked” with respect to coverage for E&O claims made after the sale, and the buying agency doesn’t want to bear the reputational and financial cost of its predecessor’s mistakes. The best bet for both parties is for the seller to purchase an ERP, the cost of which is considered in negotiations between buyer and seller.

So, back to the title: “To ERP or Not ERP, That is the Question”. The answer is:

1. As long as you are actively in the insurance business, even if it is only to provide servicing of a sold book of business, you need to keep your E&O policy in place.

2. When you are no longer actively in the insurance business, you should terminate your E&O policy and purchase an extended reporting period.

3. What time period should the ERP cover? Ask your attorney what the applicable statute of limitations is in the state(s) where you do business, and go with the longest applicable time period.

4. And after the effective date of the ERP, you should no longer provide any services to your former customers. Instead, refer them to the firm that purchased their business. That agency has E&O coverage in place for current errors and omissions. You do not.

If you do these things, then you can take time to enjoy fond memories of your former profession.

For more information about buying, selling and merging agencies, there is a great webinar on the E&O Happens website called ” Agency Risk Management Essentials: Navigating the Hazards of Buying, Selling and Merging an Agency” available to IIABA members who are also Swiss Re Corporate Solutions insureds. It provides a more in-depth discussion, more examples and additional information from industry professionals who have helped agency owners navigate these waters.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re”) and/or its subsidiaries and/or management and/or shareholders.

*Richard F. Lund, JD, is a Vice President and Senior Underwriter of Swiss Re Corporate Solutions, underwriting insurance agents errors and omissions coverage. He has also been an insurance agents E&O claims counsel and has written and presented numerous E&O risk management/ loss control seminars, mock trials and articles nationwide since 1992.

This article was originally published on eoguardian.com.

By: Mallory Cornell | IIAW Vice President & Director of Risk Management

Do you ever wonder what types of errors are most often the cause of E&O claims? Does high occurrence also mean high costs? In a recent review of E&O claim data from our partners at Swiss Re Corporate Solutions, it was found that Wisconsin insurance agents incur the highest claim costs from failing to recommend coverage, but that’s not the most common type of error in the state. In fact, only about 7% of Wisconsin E&O claims arose from failing to recommend coverage.

The data shown in the tables is provided by Swiss Re Corporate Solutions and captures claim information from January 2015 - December 2019.

While we can only speculate specific reasons for why certain error and omission allegations are more prevalent in Wisconsin than nationally, we can learn from this information and use it to improve agency operations and employee E&O awareness.

For   example,   if   28%   of   E&O   claims   in   Wisconsin   are   due   to   failing   to   procure coverage   then   agencies   should   have   a   heightened   awareness   around   agency workflows to review applications and policy information. Failing to procure coverage is often the result of missing one of more aspects of the insureds request. It might be an additional vehicle or adding an endorsement for requested coverage. As the data shows, these types of errors can also be costly accounting for about 22% of incurred claim costs.

The team at the IIAW provides continuing education, valuable storytelling, and increased E&O awareness for member agencies. In Wisconsin, we are legally required to procure coverage requested or inform the customer if coverage cannot be obtained (also known as “order taker” status). However, almost every agency has a requirement to do more than this because of the special circumstances that exist in the relationship with a customer. A special relationship is easier than ever to argue in court. With social media and websites stating services, qualifications, and promising coverage reviews, you likely have a higher duty to your customer than what you might expect. This is not always a negative, but everyone in the agency needs to be delivering the same level of customer service for each insurance transaction. Do what you say and say what you do. Seems simple enough, but oftentimes our statements and promises can get away from us.

So, what can the IIAW do to help? Our commitment to offering services for agency exposures is ongoing. As your E&O insurance provider and dedicated team of agency risk management professionals, we offer E&O Risk Management classes, Agency Operational Improvement Reviews and one-on-one support to review agency workflows and customer experiences.

Protecting your future and your agency from a costly E&O claim is important to us. You are always invited to reach out to any IIAW team member with questions about agency operations or E&O risk mitigation services through the Association.

By: Chris Boggs | Big "I" Virtual University Executive Director

This article was originally featured in our July Wisconsin Independent Agent Magazine. Read the full issue here. 

An insurtech firm I prefer not to name, other than to say they think they are geniuses when it comes to policies, was founded by two people who believed purchasing insurance was too frustrating. In fact, their website specifically states, “Navigating the world of insurance is confusing, stressful and a step backward in time....”

Because the founders were “consultants to the top insurance companies,” they knew there had to be a better way for consumers to purchase insurance. Their stated mission is help consumers get the insurance they need and feel good about what they got. Sort of sounds like something an agent does, but that’s not the point of this article. 

Towards this goal, the firm publishes consumer-facing articles. I recently read through several of the articles and felt they were relatively well written for consumer consumption and largely correct. What disappointed me was the “level” of credit they gave the writers; each writer was listed as, “Insurance Expert.” 

The title “insurance expert” caught my eye - in a big way. It stands to reason that obviously these writers have many years of insurance experience since they are “experts” Uh, they didn’t. Here are partial bios as examples: 

• [Author’s name redacted[ is an Insurance Editor at [Insuretech name removed] in New York City and an expert in homeowners insurance. Previously, he was working as a freelance writer for the  New York State Nurses Association and wrote for the Michigan 

Information Research Service. [Writer] has a B.A. in journalism from [University Name Redacted.]

• [Author’s name redacted] is the Associate Director of SEO Content at [Insuretech] in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness. [Writer] has a degree in English from the [University name removed].

• [Author’s name redacted[ is the co-founder of [Website name removed], a groundbreaking personal finance site for millennials that was named one of Time’s 25 Best Blogs of 2012. [Author’s] work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.

Am I missing something? Would the background of ANY of these writers qualify them to be considered an “insurance expert”? I don’t think it does, but the public doesn’t know any better. Calling yourself an expert doesn’t make it so. 

Unfortunately, the combination of missing or incorrect policy information and the misappropriation of the title “insurance expert” pushed me to send a rather 

“snotty” email to this group. As of this writing, I have not received a response. Would you like to see what I wrote? Before you read it, remember, I’ve already 

acknowledged I was a bit pompous. With that as prologue, what follows is a slightly edited version of my email.

I was reading through several of your homeowners’ and personal auto insurance coverage articles today and wanted to get in touch with you.

Yes, insurance can be confusing to those not in the business, but there is a way to explain it so the uninitiated can easily and quickly grasp its concepts and realities.

Secondly, I would be very careful calling anyone an “insurance expert” unless he/she has many years of experience in the insurance business - and is well-versed in insurance coverages and concepts. Writing ABOUT insurance in newspapers and blogs doesn’t make someone an insurance expert; neither does being in the financial and investment business. Property and casualty insurance is far more complicated than can be known just writing about insurance. You have to be “covered in the mud of an insurance policy,” you have to have actually read the policy from cover to cover, several times, and you have to know how deep the depths of insurance really are before you can begin to be considered an expert.

Further, a true expert doesn’t consider himself or herself an expert. In fact, those who truly do qualify as experts quickly shy away from being called experts; the reason, because they are so well versed in insurance, they know there is far more to know than they already do. Any person who calls or truly believes he or she is an expert doesn’t know what he/she doesn’t know.

Someone holding himself or herself out as an “expert” without the credentials to back it up is dishonest and harmful to those depending on the information the so-called “expert” has provided.

So, my recommendations are: correct the incorrect information; and don’t refer to anyone as an insurance expert who doesn’t have the necessary time and training to qualify as one.

Just my personal recommendations to you; take them or leave them as you so desire. 

OK, I realize I let my emotions get the best of me. I also realize nothing I said will change their attitude or actions. And lastly, I know that “insurance expert” is just their way to market their “brilliance.” But it needed to be said. 

But this is what I find truly interesting, they note on their site that the information they provide should not be relied upon; in fact, they intimate that agents are the better source of information. Here is the disclaimer: 

[Insuretech’s name withheld] editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

I take certain satisfaction in this disclaimer. Evidently, their “insurance experts” are not as valuable as  insurance agents.

Here are some thoughts about being an “expert” of any kind.

• True experts worry more about what they don’t know than what they do know, continually looking for ways to fill their knowledge gap. Self-proclaimed experts ignore the breadth of what they don’t know and are satisfied (mainly because they don’t know what they don’t know). 

• True experts are rarely absolutely certain. Self-proclaimed experts are rarely in doubt.

• True experts admire other experts and desire to learn from them. Self-proclaimed experts don’t see anyone else as an expert, feeling others have nothing to offer. 

• True experts listen to and value the opinions and advice of others. Self-proclaimed experts think theirs is the only opinion that matters. 

• True experts openly admit when they don’t know the answers. Self-proclaimed experts ALWAYS know the answer - even when they don’t.. 

• True experts apply the experience learned from past accomplishments to accomplish more. Self-proclaimed experts rest on past accomplishments. 

• True experts don’t really like being referred to as experts. Self-proclaimed experts revel in such an introduction.

• True experts desire to give all their knowledge away so others can be better. Self-proclaimed experts hold on to their knowledge so others have to come to them. 

• True experts do not proclaim themselves experts - others do. Self-proclaimed experts use the term as a marketing ploy. 

• Be wary of anyone who eagerly takes on the mantle of “expert,” they probably aren’t. If you call yourself an “expert,” you probably aren’t. 

One last thought, if the word “expert” is used anywhere on your website or in your marketing, you better be one because that is the standard/expectation that you have set. Afterall, who do you expect more from, the apprentice of journeyman electrician or the master electrician? The best course of action is to take the term “expert” off all websites and marketing materials.

When you are an expert, you won’t feel like one. If you feel like one, you aren’t one. The more you know, the more you realize you don’t know. And people who don’t know, aren’t experts - at least in their minds. 

On May 21st, in Emer’s Camper Corral v. Alderman, the Wisconsin Supreme Court issued a 6-1 majority opinion confirming a rigorous causation standard for negligent procurement E&O claims.

The policy at issue? A garage policy from Western Heritage Insurance. Camper Corral claimed its agent promised a $1,000 per-unit and $5,000 maximum annual deductible for hail claims—a peril that Camper Corral had encountered in both 2011 and 2012, leading to six-figure claims and its previous policy being non-renewed. In fact, the new policy had $5,000 per-unit hail deductible with no aggregate limit, which Camper Corral allegedly learned only when a 2014 hail storm damaged 25 vehicles and it incurred $125,000 in deductibles on the loss.

In the ensuing E&O litigation, Camper Corral tried to prove its case against the agent based on the fact that a policy with a lower hail deductible was “commercially available” in the insurance market—but Camper Corral did not (and likely could not, based on its claims history) prove that it would have been eligible for such coverage. The trial court found, and Supreme Court agreed, that this was a failure of proof of causation of damages, i.e., Camper Corral could not show the agent’s alleged “negligence was a ‘substantial factor’ in causing its loss under the commercial availability theory without evidence that a policy with the requested terms” was actually available to Camper Corral. According to the Supreme Court, Camper Corral needed to prove that an insurer would actually have sold it the lower deductible policy it claimed it was promised by the agent—and Camper Corral’s owner’s testimony that she was shown a quote was not enough.

Camper Corral’s other principal theory was that the agent should have been held responsible under a “detrimental reliance” theory because it relied upon the alleged representation from the agent that he had secured a policy with a lower deductible. According to Camper Corral, if it had it known that its policy actually had the higher deductibles, it would have taken additional steps to protect its inventory. The Supreme Court dispensed with this claim because Camper Corral had introduced no evidence to support it at trial. 

The key holding and real win for agents and E&O carriers is the court’s causation holding:

"In a cause of action for negligent procurement of an insurance policy, the insured cannot establish the insurance agent’s negligence was a “substantial factor” in causing its loss under the commercial availability theory without evidence that a policy with the requested terms was available to the insured."

Emer’s Camper Corral v. Alderman, et al. 2020 WI 46, ¶45. This clear statement of the burden of proof will bolster the defense of future claims in similar cases. Keep an eye on the Independent Agent for a future column breaking down the Camper Corral decision and its impact.

By: Swiss RE Corporate Solutions

*This article was featured in our May 2020 Wisconsin Independent Agent Magazine. Click here to read the full May 2020 issue. 

You are all very aware of the events of the last several weeks and the Coronavirus. We are not health experts and there are many others more qualified to give you that advice. We CAN, however, give advice regarding how to reduce the likelihood of an errors and omissions exposure as a result of this event. We have already become aware of some attorneys who are trying to take advantage of this situation for monetary gain against insurance agents. Our advice during this event is no different from what we have said in the past. If your agency has developed good practices, you will be better positioned to avoid problems. Here are the practices of a good insurance agency:

• DON’T MAKE CLAIMS DECISIONS! Let the insurance carriers do that. 

• DON’T ADVISE YOUR CUSTOMERS IF CORONAVIRUS related    items are COVERED OR NOT! Let the insurance carriers do that. 

• If a carrier takes the position that losses arising from the Coronavirus are not, or may not be covered, do not engage in advocacy asserting that “We thought it was covered...” That will simply be used by your client to prove that you knew the client wanted coverage for perils like the Coronavirus, but you failed to procure coverage.

• Report all claims and potential claims to EACH AND EVERY    CARRIER that could potentially have a policy that could apply. This includes CGL, Personal lines, Umbrella, Excess, Workers Compensation, Specialty and any other policy in place for your    customers.

• USE THE RESOURCES PROVIDED BY YOU BY THE IIABA. It is a valuable resource for you, your staff and your agency that provides many sources of information. 

• Be empathetic, but don’t tell anyone that something is covered    or not. You can continue to tell them you feel sympathy for all affected by the Coronavirus, but customers MUST report a claim to their insurance carrier to determine if there is any coverage for the event.

• Remember, if you executed an agency agreement with one or more insurance companies, you MUST report all claims or potential claims as required by that agreement, even if your customer tells you not to do so.

• Maintain vigilant contact with your insurance carriers to determine what action THEY want you to take.

• DOCUMENT DOCUMENT DOCUMENT!!! This continues to be

the foundation of sound E&O risk management. DOCUMENT 

EACH AND EVERY TELEPHONE CONVERSATION, EMAIL, 

TEXT, TWEET, OR ANY OTHER TYPE OF COMMUNICATION 

WITH YOUR CUSTOMERS!

• Assume that any telephone conversations with your customers or carrier claims representatives ARE BEING RECORDED. While some states prohibit recording of telephone conversations without advising that they are doing so, IT DOESN’T STOP SOME PEOPLE FROM DOING SO. 

• If you use social media for your business, make sure it is up to    date! Do not make any promises that something may or may not have been covered by insurance companies and policies. 

• DO NOT GIVE ANY STATEMENTS, RECORDED OR OTHERWISE, WITHOUT FIRST CONTACTING YOUR E&O PROVIDER. The Swiss Re Corporate Solutions/Westport Insurance Company/First Specialty Insurance Company claims staff are available if you have any questions about any communications you receive. 

• If you have a conversation with your customer that leads you to believe that they may be fishing to make a claim against you, DO NOT HESITATE to contact our claims department. 

• DON’T MAKE CLAIMS DECISIONS! DON’T ADVISE YOUR 

CUSTOMERS IF SOMETHING IS COVERED NOR NOT! Let the

insurance carriers do that. We know this was stated before, but it must be ingrained in your mind. 

• If the Coronavirus ends up being declared a “catastrophe” by 

the ISO Property Claims Service, you may be eligible under your Westport policy for “Cat Extra Expense” benefits: “CATASTROPHE EXTRA EXPENSE. We will pay up to $25,000 per catastrophe subject to a per POLICY PERIOD aggregate limit of $50,000 for the actual extra expenses incurred by you as a result of a catastrophe during the POLICY PERIOD beginning on the date of a catastrophe and for thirty (30) days thereafter. The extra expense incurred must be incurred by you only to assist in the insurance claims processing needs of your customer(s) who have been affected by the catastrophe. The catastrophe must be a declared catastrophe by the Property Claims Services. A $500 deductible for each catastrophe shall apply. Limits provided by this paragraph are part of and not in addition to the limits

provided by this POLICY.”

We hope that this will help you as this event progresses. If you should have any questions, please let us know.