The "M" word: is "miscellaneous E&Q" the best idea with the worst name?
And Romeo responded, "Thy wish become truth! Hence, O Maiden fair, shall I be known as Romeo Miscellaneous!"
At least that's how I remember it from high school.
Just as "miscellaneous" would give neither offense to the Capulet clan, nor much definition to the Montagues, it does little to describe what may be the next form of liability insurance that nearly every business needs. Miscellaneous professional liability, aka "miscellaneous E&O," has been around for a decade or two, but may still be the most under-appreciated arrow in an insurance broker's quiver.
WHO NEEDS MISC E&O?
The "learned" professions--accountants, real estate agents, doctors, lawyers, architects, and others--have their own long-recognized forms of professional liability coverage. It is virtually taken for granted by client and practitioner that along with those diplomas on the office wall, there is an unseen document that supports the professional's livelihood, an E&O insurance policy. Why would other businesses, ones that we don't ordinarily associate with the word "malpractice," need similar coverage? How about human resource consultants, florists and high-school football referees? Why would they need E&O insurance?
* March 31, 2006, from Pensions & Investments: "Employees' Retirement System of Milwaukee County has filed a lawsuit against Mercer Human Resource Consulting that claims the consultant failed to adequately study the costs of a new employee benefit program, causing the fund to lose more than $100 million so far. The fund is asking for unspecified punitive damages."
* April 19, 2013, Reuters: "A Washington state florist who refused to sell flowers to a gay couple for their wedding has been sued by the American Civil Liberties Union, in the second legal action accusing the vendor of discrimination. "Florist already faced a consumer protection lawsuit over the incident filed against her last week by state Attorney General Bob Ferguson. She maintained her Christian beliefs prevented her from selling the flowers for the same-sex wedding, according to court papers."
* Georgia High School Association vs. Waddell, 248 Ga. 542, 285 S.E.2d 7 (1981) A high school football referee charged a team with roughing the kicker, but applied the wrong penalty under league rules, causing the loss of the playoff qualifying game. Parents of the losing team's players sued. The trial court ordered that the last 7 minutes of the fourth quarter be replayed. (The trial court was reversed on appeal.)
These examples involve advice or decisions that allegedly harmed someone, resulting in civil lawsuits. Setting aside the cases' merits and outcomes, one thing is certain: Someone had to pay lawyers to defend the consultant, the florist and the high school football league and its referee.
Businesses face liability from customers (the pension fund, the engaged couple) and from interested third parties (the parents at the football game). The potential liability exposure in these examples may not fall within the coverage of standard commercial general liability (CGL) or employment practices liability policies. Miscellaneous E&O coverage addresses the liability that businesses--those that don't have the fancy sheepskin on the wall--can face as result of their advice and their decisions.
When a broker presents examples like the above to potential E&O insurance buyers, the case for making the purchase seems fairly compelling. The premium for a year's coverage is a fraction of the cost of defending a single E&O lawsuit, and the business is better spending a little money on tax-deductible protection than in setting aside a large amount of net profits for a rainy, litigious day.
And then that name comes into the discussion: It's "miscellaneous" E&O, not a word that we commonly use in a positive tone. How many people tell us that they played "miscellaneous" sports in college, or that their favorite genre of novels is "miscellaneous"? The word sounds indecisive, as if the athlete couldn't decide among collegiate rugby, wrestling and badminton, or the avid reader jumped around from mysteries to biographies to science fiction, hoping to stumble upon a book worth the effort.
Because "miscellaneous" can mean anything, does it mean nothing? Quite the opposite; in the E&O context, it can mean staying in your own business rather than falling victim to the litigation business. But even without the threat of the "big bad wolf' lurking in the woods, there are other reasons why many business owners need E&O insurance:
* Contracts. Business is rarely conducted on a handshake or the back of a napkin anymore. Long-term business relationships are cemented in detailed contracts, which may include a requirement that one or both parties maintain liability insurance coverage that will protect against a lawsuit caused by the services they render. Insuring against slip-and-fall injuries, property damage and the other risks typically covered in commercial general liability policies is a good start. Would anyone submit to treatment by a neurosurgeon who only had CGL coverage? Also, contracts between large companies and their vendors often require that the vendors maintain insurance that covers liability arising from their services.
* Financial stability. Miscellaneous E&O insurance is a form of financing and risk-spreading. Most small to medium-sized businesses can readily afford premiums for E&O policies, but could not as easily pay, out of a single year's net profit, the substantial fees and costs that defending an E&O lawsuit can entail, let alone the downside risk if the lawsuit is lost.
* Friends with detriments. Today, it seems that a "friend in need" is a friend with a lawyer, not a friend indeed. When a financial loss occurs, many people look first to their close friend and trusted adviser to find the "culprit," not in a mirror. Licensed financial professionals are all too familiar with this pattern; their good pals whose kids' graduations they attended are suddenly on the other side of the little "v." in a lawsuit caption. Simply being a good, honest businessperson is its own reward, but it does not provide its own protective force field against claims.
* Recruitment. Finding excellent candidates to fill job openings and help grow the business can be difficult in a slowly recovering economy. Most businesses are not flush with cash to lure the best applicants toward themselves and away from competitors. In consulting and other advice professions, potential employees may consider an employer's E&O insurance program an incentive. What lawyer, accountant or doctor would join a firm or group that had no E&O coverage? Should a newly minted travel agent, notary public or literary agent be less reticent to do so?
* Self defense. An insurance broker whose file reflects that he or she discussed E&O coverage with a customer has a leg up in defending a suit brought by the customer after an uninsured E&O loss occurs.
Buying E&O insurance should be an easy decision, but how can Main Street businesses recognize their needs for the coverage?
WHAT DO YOU DO?
One way to illustrate the need for miscellaneous E&O insurance is to ask a business owner the time-worn question, "What does your business do?" The owner may answer by describing the function the group performs. "We manage commercial fishing vessels during the off-season, while they're getting fixed up and readied to go back out." That sounds like a very nuts-and bolts business, but dig a little deeper. In this scenario, ask if the client makes decision on behalf of the ship owners or if the client advises the owners on anything that might affect the ships.
Decisions and advice, that's the formula for a potential miscellaneous E&O exposure.
There is another way to make the case: showing the business owner the incredible variety of businesses for which E&O insurers have developed miscellaneous professional liability forms.
One large E&O brokerage firm's current website lists 271 types of service providers for which the firm can procure "miscellaneous E&O" coverage--everything from abattoirs (slaughterhouses) to zoologists. The list includes such diverse, and perhaps surprising, categories as aromatherapists, bailiffs, chimney sweeps, coaches, debt collectors, expert witnesses, hair replacement centers, horticultural consultants, polygraph operators, title abstractors and undertakers.
Looking at the abbreviated list above, it is easy to identify some of these businesses as advice-givers, especially any job title that includes the word "consultant."
A simple online search for "miscellaneous E&O" or "miscellaneous professional liability" quickly finds myriad sources and providers of the coverage. Some of them are large national and international insurers, others are brokerage firms, program administrators or trade associations. No two appears to define "miscellaneous" in exactly the same way--several have very short lists of covered "professions" and focus their efforts on them. Others cast must broader nets, listing dozens or hundreds of business types.
Insurers don't spend the time and money to develop programs without being fairly sure that a market exists for their products. Some of the sites support the need for E&O insurance with examples of claims, which insurance customers and brokers may find instructive.
What's in a name? Just as Juliet found a way to look past the hated name "Montague," business owners will come to see that value behind that other "m" word, miscellaneous, and will avoid the not-so-sweet sorrow of uninsured E&O claims. To quote the Bard, "Better three hours too soon than a minute too late."
Louie Castoria is a partner in Wilson Elser, and chairs the firm's national practice team that defends specialty professional risks, including miscellaneous E&O, insurance professional trustees/fiduciaries and cyber/media companies. Contact Louie at firstname.lastname@example.org. The views expressed in Castoria's columns do not necessarily represent those of Wilson Elser or its clients.
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|Title Annotation:||Avoiding E&O|
|Publication:||American Agent & Broker|
|Date:||Jun 1, 2013|
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