Ask most agencies what their E&O limit is and they will typically provide you with the per claim limit. And without a doubt, this is an important number especially in light of the increasing severity (cost of a paid claim) that most E&O carriers are experiencing.
However, the per claim number is only part of the equation. E&O limits are typically expressed in a per claim limit and an aggregate limit. The aggregate limit states the maximum that the E&O carrier will pay for all claims paid during that policy year. Thus, a limit of 2mil / 6mil means that $2mil is the limit for any one claim made and the $6mil is the maximum for all claims made during the policy period.
It is HIGHLY suggested that the aggregate limit be higher than the per claim limit. Let’s use the following example for an agency with a $2mil / $2mil limit:
A claim is made against the agency resulting in a payment of $1.8 mil. For the agency with a $2mil aggregate, this now leaves only $200,000 for additional claims that are made during that policy year. If the claim payment would have been $2mil, this would equate to ZERO dollars left for other claims that are made. The agency is left with no remaining protection.
If the aggregate would have been higher than $2mil, there would be additional limits available. You may be thinking “what is the chance of my agency getting hit with a $2mil claim or getting hit with multiple claims?” Believe me, these scenarios are happening! Also, do you really want to take that chance?
Some tips for agency owners to consider:
1) Don’t hesitate to ask your E&O carrier (or whoever is your contact) for some additional limit options. If you have $2mil per claim, ask for limits of $3mil and $4mil at a minimum. This will enable you to see what the premium increase would be and to enable you to make an educated decision. Obviously one of the primary reasons why agencies buy E&O is to protect themselves should “errors or omissions” occur within their shop so making the determination on the “right” limit requires some research.
2) If the premium increase to go to the next highest limit is somewhat prohibitive, at least give some consideration to the aggregate limit of your E&O protection. To go from a $2mil / $2mil to $2mil / $4mil is not going to take much in the way of additional dollars.
Your limit is obviously one of the key issues regarding your E&O protection. If the cost to increase the limits is not within your budget, consider taking the next higher deductible and use the savings from that adjustment to buy the higher limits.