Avoid a Disaster with E&O Insurance
Guest Blogger: Hanson Law Firm
Errors and Omission Insurance is a key component for most brokerages. It is equivalent to disaster insurance – and believe me, getting sued can be a disaster.
So, what do you do when your E&O carrier decides to deny your claim for some bogus reason?
Insurance contracts hold a special place in the minds and hearts of the California Courts and Legislature. They are deemed to fill a public need, and are held to a stricter standard of compliance. The thing is, most insureds don’t know that. And many insurance companies (not all mind you) aren’t afraid to take the risks involved in unfairly denying a covered claim.
With all the fancy pants language used by an insurance carrier in its application and in its policy, you’d think the deck was loaded in their favor in the creation of slick ways to get out of covering a claim. Not so buckaroo. The folks writing the laws are on to the carriers. As a result the language in an insurance policy and application is strictly construed against the insurance company, and broadly construed in favor of the insured. Any ambiguity is ruled in favor of the insured. So, when you’re confronted with determining what is is, it’s the broker that gets the benefit.
That’s one part of the equation. What about all those niggly little details that come up when the carrier does insure. You know, like when there is a settlement offer. Sometimes the broker doesn’t want to settle – because it sets a bad precedent or it just feels wrong to do so. Sometimes the broker wants to settle – because not doing so might expose the broker to uninsured liability.
What about when an E&O carrier not only doesn’t defend a claim, but cancels the policy after a claim has been made! Now the broker has no protection at all. What the heck do you do then?
A bad faith claim is a short hand way of describing what lawyers call a “breach of the implied covenant of good faith and fair dealing.” The implied covenant exists in every contract, but in the insurance contract context it has special meaning. Or, better said, broader application.
Bad faith claims can be made by the insured against the insurer for all kind of things, but generally revolve around the failure to defend a claim, or settle a claim once a defense has been given. The insured can bring a bad faith claim or sometimes the insured can settle a claim by giving it’s bad faith claim to the person that was suing the insured.
What gets even trickier is when a third party can make a claim against an insured’s carrier even when the insured doesn’t!
What’s the benefit to having a right to bring a bad faith claim? Remember we’re talking about special contracts here right? Insurance bad faith claims are based on contracts. But because the insurance contract is special, a bad faith claim, unlike a regular breach of contract claim, can result in punitive damages being assessed against the insurance company. Now that gives a claim teeth.
Aren’t you glad you paid all those premiums?
Come hear Hanson Law Firm attorneys speak on this and other topics at the Nor Cal Real Estate Expo at the Sacramento Convention Center May 24, 2012.