Errors & Omissions Insurance
Requirements for Errors and Omissions Insurance (E&O)
Errors and Omission ("E&O") or Professional Liability, covers you for claims that arise out of your professional services, including acts, the failure to act and negligence.
The E&O will have a stated limit of liability, which tells you how much the insurer will spend on your behalf.
What's covered?
In general, E&O is designed to help for defense costs and the damage awards associated with professional liability claims.
Even the most diligent professional can be held liable for a professional error, omission or mistake. Defense costs are a significant portion of the cost of E&O. A professional liability claim must allege negligence in either the performance of or a failure to perform professional services.
What’s not covered?
E&O does not cover intentional, fraudulent or illegal activities or in most policies, punitive damages.
Claims made coverage
“Claims made” means that the act causing the claim has to take place during the policy term and the claim has to be filed or “made” while the policy is in effect. If the policy has been canceled, non-renewed or lapsed and a claim is reported, the claim will be denied.
Occurrence Coverage
Under the occurrence form of professional liability, the act leading to the claim had to have occurred during the policy term, but a claim can be reported after the policy has been canceled, lapsed or non-renewed.
Tail Coverage
When your claims-made policy expires, lapses or is not renewed, you’ll have the option of purchasing “tail coverage”. Tail coverage endorsements come close to turning your claims-made liability policy into an occurrence policy by giving you an extended period to report claims – generally two to five extra years.
Prior Acts Coverage
Prior Acts Coverage protects against claims arising out of incidents that happened before the inception or effective date of the new policy. Some companies may charge an additional premium for this coverage.
Lapse in Policy
Past transactions may not be covered if there is a lapse in coverage even if the coverage is renewed. All E&O policies are written on a claims-made form. This means that if you let your coverage lapse for any reason you may lose your prior acts coverage.
What if the licensee switches E&O Carriers?
As long as the E&O is continuously maintained (i.e. with no lapses), the current insurer should cover any claims that arise, even if the event triggering the claim happened when the licensee was insured through a different carrier. If a licensee changes carriers the licensee must ensure that the new carrier includes continuous coverage within the new policy.
If the E&O policy is allowed to lapse, no insurer is responsible for any claim that arose before and during the E&O lapse, leaving the licensee uninsured for any such claim.
Some E&O insurers will provide “past acts” coverage but this does not change the fact that the licensee still has a lapse in coverage and is in violation of Councils bylaws.
E&O requirements
The Insurance Regulations:
5‑10(1) For the purposes of subsections 5-26(1) and 5-47(1) of the Act:
(a) every business that applies for or holds an insurance agent’s licence for life, accident and sickness, or life and accident and sickness insurance shall maintain and provide annually proof of a valid policy of errors and omissions insurance that:
(i) provides a minimum of:
(A) $1,000,000 coverage with respect to any one occurrence and a minimum aggregate limit of $1,000,000 with respect to all occurrences within a year; and
(B) $1,000,000 extended coverage for loss resulting from fraudulent or dishonest acts;
(ii) covers the insurance activities of the licensee; and
(iii) is underwritten by an insurance company licensed to do business in Canada;
7 Jly 2017 c I-9.11 Reg 1 s5-10.
The Insurance Regulations:
5‑10(1) For the purposes of subsections 5-26(1) and 5-47(1) of the Act:
(b) every business that applies for or holds an insurance agent’s licence for one or more classes of property and casualty insurance other than crop hail insurance shall maintain and provide annually:
(i) proof of a valid policy of errors and omissions insurance that:
(A) provides a minimum of $1,000,000 coverage with respect to any one occurrence and a minimum aggregate limit of $2,000,000 with respect to all occurrences within a year;
(B) covers the insurance activities of the licensee; and
(C) is underwritten by an insurance company licensed to do business in Canada; and
(ii) a bond in the amount of $20,000;
7 Jly 2017 c I-9.11 Reg 1 s5-10.
The Insurance Regulations:
5‑10(1) For the purposes of subsections 5-26(1) and 5-47(1) of the Act:
(c) every business that applies for or holds an insurance agent’s or managing general agent’s licence for crop hail insurance shall maintain and provide annually proof of a valid policy of errors and omissions insurance that:
(i) provides a minimum of $250,000 coverage with respect to any one occurrence and a minimum aggregate limit of $500,000 with respect to all occurrences within a year;
(ii) covers the insurance activities of the licensee; and
(iii) is underwritten by an insurance company licensed to do business in Canada;
7 Jly 2017 c I-9.11 Reg 1 s5-10.
The Insurance Regulations:
5‑10(1) For the purposes of subsections 5-26(1) and 5-47(1) of the Act:
(d) every business that applies for or holds a third party administrator’s licence or a managing general agent’s licence, other than a managing general agent’s licence for crop hail insurance, shall maintain and provide annually proof of a valid policy of errors and omissions insurance that:
(i) provides a minimum of $1,000,000 coverage with respect to any one occurrence and a minimum aggregate limit of $2,000,000 with respect to all occurrences within a year;
(ii) covers the insurance activities of the licensee; and
(iii) is underwritten by an insurance company licensed to do business in Canada;
7 Jly 2017 c I-9.11 Reg 1 s5-10.
The Insurance Regulations:
5‑10(1) For the purposes of subsections 5-26(1) and 5-47(1) of the Act:
(e) every business that applies for or holds an adjuster’s licence for one or more classes of property and casualty insurance other than crop hail insurance shall maintain and provide annually proof of a valid policy of errors and omissions insurance that:
(i) provides a minimum of $1,000,000 coverage with respect to any one occurrence and a minimum aggregate limit of $2,000,000 with respect to all occurrences within a year;
(ii) covers the insurance activities of the licensee; and
(iii) is underwritten by an insurance company licensed to do business in Canada.
7 Jly 2017 c I-9.11 Reg 1 s5-10.
The Insurance Regulations:
5‑23(1) Subject to subsection (2), every business that applies for or holds a restricted insurance agent’s licence shall maintain and provide annually proof of a valid policy of errors and omissions insurance that:
(a) provides a minimum of $1,000,000 coverage with respect to any one occurrence and a minimum aggregate limit of $2,000,000 with respect to all occurrences within a year;
(b) covers the insurance activities of the licensee; and
(c) is underwritten by an insurance company licensed to do business in Canada.
(2) Subsection (1) does not apply to:
(a) a deposit-taking institution;
(b) a financing corporation; or
(c) a member institution within the meaning of the Canada Deposit Insurance Corporation Act.
7 Jly 2017 c I-9.11 Reg 1 s5-23.