You’ve worked hard to grow your client base and build your practice. You know what products protect your clients but have you done everything possible to protect your business?

You know how important your E&O insurance is: without it, your license and your commission would be withheld; without E&O insurance, if you are sued for alleged errors or omissions or negligence by a client, you’ll have to fund your own defence, along with any damages awarded against you.

You have purchased E&O insurance protection for yourself to satisfy regulator and insurer requirements but is it sufficient? Is something missing?

No problem, you have E&O insurance. You call your broker to report a claim. What could go wrong?

If you have been fortunate not to have had a claim filed against you, you may not know how claims are litigated or who actually gets sued.

Depending on how your business is structured, you may operate completely alone within your practice and hold all of the legal responsibilities to your clients. In this case, you may have individual E&O coverage only.

Perhaps you’ve incorporated and are running a thriving agency. Just suppose one of your clients files a lawsuit against you and/or your firm. The client alleges that you sold them the wrong policy or recommended the wrong investment. They are out of pocket and are looking for restitution.

If you own your own life agency, did you buy Corporate E&O insurance for your firm?

Be careful not to assume that your Agency would be covered under your E&O program. Coverage for a “Personal Corporation” is appropriate ONLY where the Agency staff consists only of the insured individual (you) and, depending on your E&O policy, one unlicensed assistant.

Further, some provinces like Quebec, Saskatchewan and Newfoundland require a firm to carry its own limit of liability, and so if your firm were licensed in these provinces, even as a “Personal Corporation” it would require a separate coverage from your individual E&O.

Or, you may have a “team” working on your client accounts. Firms with more than one licensee can’t be covered under the individual E&O policy, and require their own E&O coverage: 1) to appropriately cover the firm’s exposure, and 2) to be compliant with provincial regulation.

Depending on where your business is licensed, it may be required by your provincial regulator(s) to have E&O insurance. It is your responsibility to know what is required and have compliant E&O, or you could face discipline from the regulators.

In the event of a legal action alleging negligence, not only could you be named in the statement of claim, but your firm could be named for its own duty of care (or breach thereof) to the client, or in failing to supervise the firm’s representatives who worked with the client.

The activities of administrators and other advisors who represent your firm can result in direct liability to the firm. If one of the advisors has left the firm, or for some reason does not have their individual E&O in place (for example, they let it lapse, or they left the business and didn’t buy tail coverage), the firm may end up having to cover the allegations against the advisor.

Depending on the facts and circumstances of a claim, your individual coverage alone may not respond to all of the allegations in a claim which also involves your firm, and you could be out of pocket for any uncovered losses or defence costs.

So, what can I do to protect my firm?

Corporate Errors & Omissions Liability insurance is a specially designed product that provides indemnification for legal liability defence costs and compensatory damages awarded in a settlement or judgment against your firm and its employees.

How much does Corporate E&O insurance cost?

Surprisingly, in most cases, for small life agencies the cost is often below $2,000 annually. If you didn’t purchase a policy due to the cost, rethink your decision and how it may affect YOUR financial future. Don’t leave your corporate assets exposed! If you own your own firm and you don’t carry Corporate E&O insurance, your business and everything you’ve worked for are, in fact, exposed, regardless of how prudent your own internal risk management practices are!

But I have Vicarious Liability for my firm!

Your policy may provide a form of coverage for your firm, known as vicarious liability, but this coverage is limited in scope and you have no control over the way in which a lawsuit is framed or who is named in the legal action. Lawsuits against financial advisors often include the firm for which they work (or in which they hold an ownership position). It is unlikely that this would provide sufficient coverage of a legal claim.

Don’t gamble with your business. You’ve worked too hard to have it taken away.

We encourage all advisors to discuss their E&O requirements with their broker or E&O provider.