How do you read a professional liability or errors and omissions policy? One of the keys is to look at exclusions, something that any lawyer seeking a good professional indemnity policy should consider closely.
Financial Planning took a look at PI policy issues and looked at the key to understanding the specifics of any such policy in a manner that would suit lawyers’ and their specific concerns.
“It’s all about knowing who’s covered, what to get coverage for, and when,” says Andrew Fotopulos, a Boston-area insurance broker who specializes in working with investment industry clients. “You need to look at all the details.”
UNDERSTAND EXCLUSIONS
Ask questions about exclusions, says Fotopulos, who adds that he’s amazed how often he comes across planners with policies that “sneak in” an exclusion for discretionary advice.
I’ve seen firms that are 90% discretionary buy policies with this exclusion because their brokers are not familiar with this line of business,” he says. “If the advisor gets sued, and it was discretionary advice, the insurer won’t cover it.”
Professional liability coverage can also protect firms from the costs of regulatory compliance issues — but, again, advisors must understand the specifics of their coverage. Some policies, says Fotopulos, only cover the expenses of a regulatory investigation when it is initiated by a client complaint. With that policy stipulation, if a regulator initiates a case on its own — as the result of routine visit, say — then firms are left holding the bag.
SERVICES & PEOPLE COVERED
Most high-end E&O policies cover breach of fiduciary duty, but advisors should also understand the scope of professional services that are insured. In many cases, financial advisors serving as trustees to clients’ accounts or performing bill-paying functions assume that they are covered because those functions are all part of their financial services responsibilities, but that’s not necessarily the case, says Fotopulos.
Know which staff members are covered, too. For example, some liability policies will only cover employees who file W-2s and not independent contractors.
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