EPLI and E&O - Real insurance agent exposure
Many agents may recall a recent article on the importance of recommending Employment Practices Liability Insurance to small business customers. Curtis Pearsall, CPCU, ARM and President of Pearsall Associates, provides several good reasons for including an EPLI proposal in every commercial account review. If you missed it, just click here.
While such insights are valuable, there is nothing like a real E&O claim to demonstrate the exposure. Recently, the feared scenario became a reality for one agency. While the court ultimately rejected the claim on statute of limitations grounds, the insurance agent E&O facts and discussion are worth reading.
The insured business began working with the insurance agency in 1985. The insured directed the agent to secure all of the appropriate coverages for suits from employees and the general public, which it did for almost two decades. Fast forward to 2004, when the insured was sued for wrongful termination and learned that he did not have any protection. Of course, EPLI emerged as a product in the interim years. The agent showed one letter suggesting EPLI in 1999 but no cover was purchased. The court viewed the suit as one for professional negligence (rather than breach of contract, as the insured asserted), and held that the statute of limitations had run. In the end, there was no recovery.
The question at the heart of the lawsuit was whether the agent deviated from the professional standard of conduct for insurance agents, and thus committed professional malpractice. Since time ran out for bringing any action, the court never had to answer the professional negligence question. But someday a similar scenario like will reach a court in time, and then we will learn if the failure to recommend EPLI is E&O for insurance agents. Until then, it might be wise to take Mr. Pearsall's advice.