Learning Your E & O Coverage – Application

A gecko? A rock? An insurance ad?

In an effort to keep attorneys educated on issues of attorney liability and ethics issues, I include within the scope of this blog issues concerning errors and omissions insurance coverage (“E&O”).  In addition to representing attorneys, I also have a significant insurance coverage practice.  That coverage practice includes dealing with coverage issues of claims made E&O policies that are typically provided to attorneys.  The need for this inclusion is made clear by my practice.  Many attorneys either do not understand their own insurance coverage or act in ways that undermines their own coverage when they need it.  This post will begin a series of posts on various issues and aspects of E&O coverage of which every attorney should be aware.  


Let’s start with the first step in getting E&O coverage, the application.  Taking the time to accurately complete your application (and any renewal applications) must be a priority.  It is easy to overlook important details about your practice or your knowledge of potential claims.  Misrepresenting those facts in a policy application is much riskier to your future coverage needs than not disclosing these facts, even if it means a higher premium.  All too often, insureds fail to disclose a known risk or simply quickly complete the application and forget to provide necessary information.  Either mistake can be costly when a claim comes.  

Don't Let Your Coverage Disappear

The most common misrepresentations in an attorney E&O policy application include not disclosing a risky practice area, not disclosing a prior claim, or not disclosing knowledge of facts that could support a claim in the future.  These withheld facts often come to light after a claim arises.  The risk of a voided policy is simply not worth a potential increased premium price. 

Under Georgia law, an insurance policy may be rescinded (voided from its inception) due to a material misrepresentation in the policy application.  It matters not if the misrepresentation was intentional or mere oversight.  Thus, an insurer would not need to prove that the misrepresentation in the policy application was intentional.  This means that the application process should not be treated lightly.  

Rescission is a much more serious remedy for the insurance company than mere denial.  When a policy is rescinded, the policy becomes void and “never existed.”  This is significant for two very important reasons.  First, under rescission, there is no longer a policy and thus no claims will be covered, whether related to the policy misrepresentation or not.  Second, although many policies cover “innocent insureds,” a rescinded policy will not cover anyone in the firm.  

Rescission is best avoided by fully disclosing all facts requested in a policy application.  Attorneys should be careful to not take the policy application lightly, and should never intentionally hold back information with high hopes that a known potential claim will not surface.  

Next week I will discuss the difference between “occurrence” and “claims made” policies.  Every policy I have seen covering attorneys is a “claims made” policy, and many people do not appreciate this important distinction.

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