In November 2020, attendees of the Professional Liability Underwriting Society’s virtual conference warned insurance brokers that due to pandemic-related factors, they should expect a substantial increase in the size and frequency of errors and omissions (E&O) claims against agencies in 2021.
The reason? Because history has shown that after a catastrophic event or a major crisis, insureds generally contact their broker to discuss what their policies will and won’t cover, along with specifics regarding claim settlements and denials. Unfortunately, the industry today is seeing a growing trend of insureds purchasing the least amount of coverage possible and, when a claim issue occurs, attempting to fall back on the broker’s E&O coverage as a type of excess policy. As a result, insureds that aren’t satisfied with what they hear can often trigger E&O allegations and increase the likelihood of professional liability claims. Some of these allegations against agents for E&O claims commonly include a failure to procure or a misrepresentation of coverage, not processing claims in a timely manner, and a failure to properly identify exposures and recommend appropriate coverages.
According to an article in MyNewMarkets, specific COVID-19-related E&O claims are likely to be attributed to brokers allegedly failing to advise insureds as to what their current policy won’t cover, as well as not recommending coverage that policyholders should have been advised to purchase. Currently, the main COVID-19 E&O issue is primarily property-driven, with a focus on business interruption-related litigation claims against brokers, along with other operational coverage concerns. According to the UPenn Litigation tracker, as of March, businesses in the U.S. have filed nearly 1,500 COVID-19-related lawsuits challenging insurers that denied business interruption and other property damage claims.
Recently, however, in a large majority of cases that have already been decided, the court has ruled in favor of the broker or the insurer by way of motions to dismiss or for summary judgment. But although it appears that more courts are falling on the side of brokers and insurers, appeal cases filed by plaintiff’s attorneys are also trending up.
Over the next several months, clients will be looking to their brokers for answers as to whether they have a potentially covered COVID-19-related loss. Most experts agree that the best line of defense against this growing number of pandemic-related E&O claims is for brokers to understand and be prepared for what they could be up against and to properly document all client communications.
Kristi W. Dean, Managing Partner
Stone Dean LLP
Kristi is an experienced litigator and transaction attorney who represents clients in business transactions and litigation disputes. Her litigation practice focuses on trade secrets, unfair business competition, insurance law and complex business disputes, with a focus on insurance-related issues.