29 Nov E&S – Be on the Lookout for Crazy Stuff
With current market conditions, many E&O Plus agencies indicate during their annual reviews that they are in greater need of the E&S market. A key issue to note when using E&S carriers is their greater flexibility and freedom on rate and policy form. In other words, they can modify (sometimes significantly) the coverage based on their underwriting appetite. One of the agencies I am honored to work with advised me that every E&O claim the agency has faced over the last three years has had to do with coverage placed through the E&S non-admitted marketplace.
Some recent examples of policy coverage through the E&S market:
- Coverage was written on a General Contractor that was building all the homes in a particular development. The GL policy form modified the coverage so it would only apply if the GC built ten or fewer homes in any one development. Thus, the bottom line, once the GC built the 11th house in the development, the coverage ceased.
- Many restaurants now probably have more exposure for food delivery, with some of these businesses using their own staff for this purpose. There is the possibility that carriers writing restaurants (many admitted markets) don’t want this non-owned / hired exposure and may exclude this exposure from the policy. This would probably prompt the agency to go to the E&S market for this coverage. In one instance, the E&S carrier restricted the non-owned coverage to only food delivery. Unfortunately, when one of the employees was involved in an accident making a nightly bank deposit, the E&S carrier denied the loss since the coverage was restricted to food delivery only. An E&O claim is sure to follow since the client alleged they were unaware of the coverage restriction.
These may seem fairly harsh examples of the actions E&S companies can take to provide coverage “on their terms,” but I am sure these examples are becoming more common than in the past.
As the agent, you must identify these coverage modifications and bring them to the client’s attention. When you receive the proposal from the wholesaler used to access the E&S marketplace, take the time to review it in depth. The proposal should indicate all endorsements they plan to use. There is a good chance you may not understand what the endorsement does by the title, so it is heavily suggested to ask the wholesaler for a specimen copy of the endorsement. If you are still not sure, ask the wholesaler for an explanation. The coverage modification referenced in the specimen form should be brought to the client’s attention, typically at the time of the proposal. Securing the client’s acknowledgment (in writing) of the coverage modification is a good E&O Best Practice.
When using the E&S market, a “red flag” should go up to be alert for any coverage form issues. Very honestly, you may wonder, at times, what coverage is being provided.