We came across an article on insurance agents E&O (errors & omissions, or professional liability) with some misleading information. The article, which unfortunately is not available on the web, states that receipt of a subpoena is a claim under an insurance agents E&O policy, and therefore should be reported to your E&O insurer.
Unfortunately, the article is misleading. The receipt of a subpoena by itself does not constitute a claim under most insurance agents E&O policies. However, you probably should report it under your E&O policy in an abundance of caution, and to have the benefit of expert advice before complying.
Why does a subpoena not necessarily trigger an E&O claim? All definitions of claim in insurance agents E&O policies are similar (but not the same), so we randomly picked one:
Claim means a demand for monetary damages arising out of a professional service made against the insured...
The key wording is the demand for monetary damages. A subpoena is not a demand for monetary damages, and would therefore not trigger a claim under this policy. However, most policies also provide for some mechanism to report an incident which might lead to a claim, and here is one example:
...an event about which an insured obtains knowledge which might result in a claim is reported in writing to us…
What a subpoena might trigger is a realization that there is the potential for a demand for monetary damages at a later date. But not always. Here is one real-life example where the subpoena did not trigger a claim:
An insured reported a claim to its insurer. After its investigation, the insurer denied coverage for the claim for material misrepresentation in the application. The insured brought a claim against the insurer alleging bad faith, and the insurer subpoenaed the agency which placed the account. The agency checked their files, and concluded that there was no error on their part and that the file was well documented. The agency went first to its own counsel to review the matter and obtain advice, and then immediately requested an indemnification from the insurer for any ensuing litigation. The insurer agreed, and then the agency reported the situation to its own E&O insurer.
The E&O insurer was pleased because there was no demand against its insured, the agency (ie no formal claim), and an indemnification was in place. And the agency was protected by the indemnification.
Note that each situation is different, and legal counsel is critical in assessing alternative strategies.
Brought to you by Tennant Risk Services.
Specialty Insurance Expertise: Tennant Risk Services
Content © Worldwide Facilities, LLC, 2005 - 2019 | All Rights Reserved.