Coverage gaps: periods of time when your Errors & Omissions (E&O) coverage has expired, lapsed, or has been cancelled and there is no policy in force.

Gaps in coverage are never good and have severe repercussions. Your finances and livelihood are at risk: gaps in coverage could leave you paying for a claim out of pocket; in trouble with your provincial insurance regulator - including losing your license; and lead E&O insurers to conclude that you are a bad risk – they can refuse to insure you.

Some Advisors believe that they only need Errors and Omissions (E&O) coverage in place when they are actively placing business. Unless you are permanently leaving the business and giving up your license(s), this is a serious misconception.

If there are gaps in coverage, you will lose coverage for past acts. If you drop coverage (let it expire, lapse or be cancelled), and later obtain new E&O coverage, you ‘restart the clock’ and only have coverage for business done starting from the effective date of the new policy, going forward. Even if you had uninterrupted coverage for 20 years prior to dropping coverage, you lose the ability to make a claim from any business done in those 20 years, should a past incident from that time come back to haunt you.

Even if you are leaving the business, your liability doesn’t end. A claim could later arise from business done before retirement – this could end your retirement. If you are planning to retire, or cease doing business for other reasons, speak to your E&O Broker about how to protect yourself and/or your estate.

Many provincial insurance regulators require their licensees to carry E&O. E&O is a protection for the public as well as for you. You are a professional, but mistakes can happen. An error could put you and your client in financial peril. Even an alleged error requires you to provide a defence for yourself. Most people don’t have enough financial means to set aside to cover these financial liabilities which is why you purchase E&O. For provinces which require it, their licensees must carry continuous E&O for as long as they are licensed. If you are found in non-compliance with the regulation, regulators will likely take disciplinary, and/or punitive action – you could even lose your license; your livelihood. 

Claims Made Liability vs Occurrence Based Liability 

You’re probably more familiar with home or auto coverages which are typically “occurrence” based, and can be thought of as “permanent” liability coverage. With most home or auto policies, if there was a policy in force at the time of a loss, then there is coverage years later, even if the policy has lapsed. This is not how Advisor E&O policies work.

Most Financial Advisor, and insurance licensed E&O policies are written on a “claims made” basis. “Claims made” is like “temporary” coverage; it only exists if there is a policy in force when a claim is brought, even if the [alleged] mistake or act happened years ago. Claims must be reported to the insurer during the policy period in which they are brought. If you  allow “claims made” coverage to expire, lapse or be cancelled without replacement, coverage disappears as though it never existed. 

Claims made coverage must also be maintained on a continuous basis. An Advisor often obtains E&O for the first time when they first get licensed or registered with a self-regulatory organization (example MFDA, IIROC, or Provincial Life Insurance Regulators). To have continuous coverage, policies must be in force consecutively from the first day coverage is obtained, and must be renewed or replaced before they expire. If coverage is dropped 
(allowed to expire, lapse or be cancelled) at any time, a gap in coverage exists regardless of how quickly new coverage is obtained. 

So you’ve messed up and you have a gap? Call your broker. 

What is backdating?  Backdating is making a new policy effective for a date that has already past, for example if you missed your renewal date. DO NOT rely on this as a renewal strategy, because insurers are reluctant to backdate coverage, and often refuse. They are under NO obligation to backdate. Worse still, if you have a claim during the gap – when you are not covered by a policy - your insurer will likely refuse to backdate, and will most certainly deny coverage for the claim. On the rare occasion that backdating is granted, a provincial insurance regulator could still take disciplinary action for the period of time you were without coverage. 

Professionalism Counts: coverage gaps can lead to credibility gaps. It’s difficult to present yourself as a capable professional in a court, or before a regulator if you don’t keep your coverage in force. 

Avoid a gap in coverage to avoid repercussions. Never let your policy expire, lapse or be cancelled without having another policy in place first to avoid repercussions that may include, but are not limited to: paying for a claim out of pocket, facing regulatory discipline or losing your license, losing credibility as a professional: in the eyes of regulators, the businesses you contract with, your insurer, a court of law. 

This is not professional advice; please consult with your broker for specific advice on your situation.