Errors and Omissions (E & O) insurance usually provides that the insurer will pay any “damages” which the insured becomes legally obligated to pay because of an “error or omission,” and that the insurer will defend any claim seeking such damages. E & O insurance is sometimes occurrence based, meaning that it only applies to an “error or omission” that occurs during the policy period, as long as it is reported to the insurer within the reporting period specified in the policy, if any. Other E & O insurance, such as some lawyers professional liability policies, are claims made policies. Under a claims made policy, there is coverage for claims made during the policy period, and reported to the insurer during the policy period or any applicable extended reporting period.
Error or omission” is usually defined in the policy. For example, lawyers professional liability policies typically cover claims arising from rendering or failing to render “professional services,” while “professional services” are defined as “all services rendered by the insured in an attorney-client relationship in the insured’s capacity as a lawyer, and include serving as notary, title agent, administrator of an estate, executor, guardian, trustee or similar fiduciary capacity on behalf of the ‘named insured’ or ‘predecessor firm.’”
Like most other policies E & O insurance usually excludes intentional acts. E & O policies also usually exclude claims arising from the use of automobiles, water craft or pollutants.
Professional liability insurance policies also typically exclude coverage for “any claim arising out of any negligent act, error or omission occurring prior to the effective date of the policy if any insured at the effective date knew or could have reasonably foreseen that such a negligent act, error or omission might be expected to be the basis of a claim.” The interpretation and application of this exclusion turns on the specific language in the policy. The courts have routinely held that exclusions using language similar to the quoted exclusion invite a subjective determination by the attorney/insured, such that a pre-existing allegedly negligent act cannot be excluded unless the attorney/insured subjectively believed that the act would likely result in a claim.