From the October 2009 Issue of Senior Market Advisor Magazine
Full disclosure: Since 2008, National Ethics Bureau has been sponsoring affordable errors and omissions insurance for low-risk advisors. And this experience has alerted us to a time bomb that may be lurking in your business and could be fatal to your finances.
If you have an E&O insurance policy, you already know what it does. But here’s what you might not know: Even lapsing your policy for as little as one day can leave you open to a financially devastating lawsuit down the road.
Here’s the problem. Most E&O insurance policies are written on a “claims made and reported” basis. This means they cover claims that are “reported” during the current policy period even if acts or omissions giving rise to the claim happened in the past.
In other words, as long as you don’t lapse, your most current insurer covers claims that are made against you now, even if the original deed happened in the past, when you were insured elsewhere. But if you lapse your coverage, no insurer is responsible for your past deeds.
E&O case study
Will B. Ruined is an experienced advisor proud of doing everything “by the book,” including keeping his E&O policy in force for 10 years. But in his 11th year, money was tight and he didn’t renew. Six months later, he asked his insurer to reinstate him, which the company did. Problem solved, right? Wrong!