By James Candler, President of HSA Insurance Services
Do you want to share your E&O insurance coverage with a bank or even the government? Most real estate professionals would agree that this does not sound like a good idea.
While we’ve seen a rebound in the housing market, the market still has a good share of foreclosures and bank owned properties. Over the last few years we’ve seen an increase in requests from our policyholders to add banks and management companies as additional insureds on their errors and omissions policies. Brokers need to be aware of the risks that this creates.
The intent of this request from a broker’s clients is to have the broker’s errors and omissions policy extend coverage to them if they are sued as a result of a negligent act, error or omission that resulted from the broker’s professional services. This may seem like a good reason, but it creates potential risks that brokers should be aware of:
- Adding a client to a policy as an additional insured could allow them to report claims directly to the insurance carrier.
- A typical policy is designed to cover the broker’s professional services. Adding another insured could potentially provide coverage to the additional insured’s other professional activities.
- The policy limits of liability could be shared with the additional insured in the event both were involved in the same claim.
In all three of the above situations, the policyholder could lose control of the claim, and would be sharing the limit of liability with the client in the event a claim that triggers the policy.
Errors and omissions policies typically contain an exclusion from one insured suing another insured. When a broker has added an additional insured to a policy they become an insured. The insurance company may not be obligated to provide coverage in this situation. Errors and omissions policies are designed to compensate parties other than insureds and are not intended to cover disputes between co-insureds.
When we receive requests to add additional insureds, we will work with the insurance carrier to attempt to come up with a solution that is agreeable to all parties involved. Based on the carrier and their underwriting guidelines, we are often unable to honor these requests. In some cases, we have provided a certification of coverage to a broker’s client requesting to be named as an additional insured, and this has been accepted.
In summary, adding an additional insured may not be in a broker’s best interest or in some cases not in the best interest of the client requesting to be added as an additional insured.â€¨
For more information, visit www.hsainsuranceservices.com.