Understanding Your E&O Insurance Policy

Across the United States, E&O Insurance policies vary in terms of coverage, limits and definitions. Understanding a few basic insurance terms can help you when you’re applying for quotes, reviewing your coverage, and/or submitting an insurance claim.
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Key E&O Insurance Terms

LAPSE: The policy for which all benefits to the policy holder cease and is terminated due to nonpayment of premium amount on the due date or even after the grace period is called a lapsed policy.

DEDUCTIBLE: The amount of expenses that must be paid out of pocket from an insured in the event of a claim. The insurance carrier is responsible for everything beyond the deductible amount outlined within the policy.

CLAIMS-MADE: This type of policy provides coverage when a claim is made against the policy, regardless of when the claim event took place. (The one exception is when a retroactive date is applicable to a claims-made policy. In such instances, the wrongful act that gave rise to the claim must have taken place on or after the retroactive date.) Most professional, errors and omissions (E&O), directors and officers (D&O), and employment practices liability insurance (EPLI) is written as claims-made policies.

RETROACTIVE DATE: A provision found in many (although not all) claims-made policies that specify a particular start date for which coverage would respond to wrongful acts. Claims prior to this date would not be covered. This date is VERY important when switching carriers.

SUBLIMIT: A limitation in an insurance policy limiting the amount of coverage available to cover a specific type of loss or service.

EXCLUSIONS: A provision within an insurance policy that eliminates coverage for certain acts, property, types of damage or locations. VERY IMPORTANT TO REVIEW ALL EXCLUSIONS BEFORE BUYING.

TAIL COVERAGE: An extended reporting period (ERP) endorsement, offered by insurance carrier, which allows an insured the option to extend coverage after the cancellation or termination of a claims-made policy.

EFT – ELECTRONIC FUNDS TRANSFER: An automated payment method that replaces sending a paper check. Many times carriers will waive billing charges or fees when electing this method.

WRONGFUL ACT: Means any actual or alleged negligent act, error, omission or misstatement committed in your professional service.

CLAIM: Means a written/emailed demand or suit YOU receive.