If wedding vows were worded like E&O insurance policies, they might sound like this:
“I, Randolph, take you, Gertrude, to be my lawfully wedded wife, to love and honor, for better, for worse, for richer, for poorer, in sickness and in health, as long as we both shall live. These promises are subject to the following exclusions:
- If you start acting strangely, get our names in the tabloids, and expose us to public ridicule, I’m outta here.
- If you develop a drug, gambling, or other really expensive addiction, you’re on your own.
- If you decide to give all our money away and have us live in a yurt, count me out.”
E&O insurance policies aren’t like wedding vows. Their periods are much shorter than “as long as we both shall live” and they don’t accept the policyholder totally and without reservation. They cover many of the usual risks that arise from the insured’s business or profession, but not all of them.
Sheri Pontolillo, founder of E&O Pros, a brokerage firm in Southern California, recently posted one of her informative video blogs, “E&O Smarts,” on this subject. (I’m appending a link for your convenience.) Sheri has a knack for introducing complex subjects to insurance novices. Her post on exclusions illustrates four categories of common E&O policy exclusions:
- “Obvious ones,” such as exclusions for criminal behavior, intentional harm, and known losses.
- Risks that should be covered under different kinds of policies: liability arising from employment practices, ERISA benefit plans, bodily injury and property damage, for example.
- Risky products—the “frequent fliers” in the Claims Department, including self-funded health plans and viaticals.
- Products and services for which the E&O insurer has “no appetite” and that aren’t provided by most insureds. In the investment arena, unregistered securities and naked options are examples. If mutual funds and well-rated bonds are the “vanilla” products, these would be the equivalent of Monty Python’s “crunchy frog” candies.
There are many other carve-outs from E&O policies—things that don’t fit inside the grant of coverage or others that may fit but represent business risks, such as collections cases and fee disputes, rather than errors in judgment or in execution of promised services. Generally, E&O policies cover the defined professional services (accounting, freight forwarding, yoga instruction, etc.) performed for others for a fee. The fact that an insured yoga instructor also teaches vegan cooking doesn’t automatically expand the policy’s coverage to include culinary arts, unless the “profession” has been defined in the policy to do so, or cooking classes are added by endorsement. And fee disputes are almost universally excluded.
An E&O policy is a promise of future protection against stated risks, a narrower and more commercial promise than wedding vows, even between celebrities. Understanding what’s covered or carved out is crucial to effective risk management when reviewing an E&O policy.
Or when saying, “I do.”