When is Contract Wording Like Duct Tape? New Paper from GE Insurance Solutions Reveals the Answer.

KANSAS CITY, Mo. -- Duct tape is commonly used in all manner of household repairs. Many people say they can't live without it.

So, too, insurers and reinsurers have come to rely on the Errors & Omissions clause. The reasons are found in a new white paper from GE Insurance Solutions (NYSE: GE), authored by Associate General Counsel David Newkirk.

But just as you wouldn't use duct tape to repair a car's engine, the E&O clause is not suited for every situation.

Newkirk traces the origins of the E&O clause wording to the late 19th century, when underwriters sought to protect themselves from mistakes made by quill-bearing clerks on long lists of transactions called bordereaux. So long as the mistake was caught and corrected, the original intent of the policy wording would apply and liability would not be affected.

However, Newkirk notes that over time disputes arose and insurers began to seek to expand the scope of the clause in court. He cites case law and notes the evolution of legal strategies during the 20th century, some of it ill conceived.

Newkirk notes: "Many of the attempted uses of the clause in the later twentieth and twenty-first centuries are to correct errors of judgment -- not the flow of information."

The paper offers practical risk expertise for today's reinsurance and insurance underwriters, with examples of improperly ceded types of risk, pre-contractual non-disclosure and late claims notice.

Of particular note, Newkirk examines the implications of using E&O in today's excess of loss reinsurance contracts and concludes that some judicial authorities see it as a transplant from proportional contracts with no place in an XoL contract.

The paper will appear in the Journal of Reinsurance, and is now available through the GE Insurance solutions Web site at http://www.geinsurancesolutions.com/erccorporate/inst/ic/cs/eo/ 060208_duct.htm. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

About the author: David Newkirk is Associate General Counsel for the Primary Markets division of GE Insurance Solutions. He graduated from the University of Nebraska Law School with High Distinction in 1987, and has been with GE Insurance Solutions since 1990. His articles have appeared in the University of Nebraska Law Review, the Missouri Bar's Sources of Proof Deskbook, and the International Claims Association's Workshop Reports.

GE Insurance Solutions (NYSE: GE) is a group of companies that protects people, property and reputations. With more than $50 billion in combined assets, GE Insurance Solutions is one of the world's leading providers of commercial insurance, reinsurance and risk management services. More information is available at www.geinsurancesolutions.com.