Adjusters errors and omissions coverage is available to independent adjusters and public adjusters. It protects their interests when a client or a claimant sues them for neglect or breach of duty. One of the major problems is that the coverage may appear to be an unnecessary expense.

Since independent adjusters work with insurance companies, they may believe they are protected by the company they represent. However, Lee Helms, underwriting vice president of Claim Professionals Liability Insurance Company (RRG) (CPLIC), suggests that, “All adjuster firms, including one person firms, should have their own E&O coverage and not rely on coverage extended by larger firms for whom they are working as independent contractors.” While some coverage may be provided by the client insurance company, there is no protection for the adjuster firm if the company brings a suit. In addition, since the representation by the insurer will be on behalf of the insurer, it will be biased in favor of the carrier. The adjuster has little or no input as the carrier negotiates.

Jeanie Cardon, at Hall & Company (MGU for Travelers Insurance Adjusters E&O Program) provides some additional reasons why adjusters should purchase their own coverage. “Local adjusters are often named in a suit so that a loss will stay in the local jurisdiction and not go to a federal court, which may not be as favorable to the claimant. If the adjuster is ultimately released from the suit it is not without claims handling expense and time, which with E&O coverage is handled by the carrier. Without coverage, the adjuster is taking time away from her or his adjusting business to address the claim, not to mention the out of pocket expense.”

Considering all the attention independent adjusters received following hurricanes Katrina and Rita, as well as after the 2006 spring storms in the midwest, is the marketplace still willing to write adjusters?

According to George Vaccaro of MGA Eastern Special Risk, “The magnitude of the damage caused by hurricane Katrina put the industry to a real test, and for a time, depleted the catastrophe pool of adjusters.” However, CPLIC’s President Michael Hale brings up an interesting point. CPLIC, a risk retention group specifically for claims adjusters, “did not see an influx of new applications as a result of Katrina and therefore concurs that there hasn’t been a market contraction, but there have been more catastrophe adjusters named in Katrina-related lawsuits. The expense and indemnity was picked up by the principal in the suit and not the insured adjusters.” James Donovan, senior vice president of MGA Professional Indemnity Agency noted that, “The better insurance companies are providing more training and oversight to adjusters as a result of events like Katrina.”

Mike Adamski, second vice president for Errors and Omissions Division of United States Liability Insurance Group (USLI) says he has not seen an increase in litigation following Katrina, while Lisa Arguello, vice president Marketing and Communications of York Claims says, “E&O claims have increased because it’s the law of averages. If the number of assigned claims increases, then adjusters E&O claims may increase." This increase created a temporary problem, but Sue Lindstrom of Constanza Insurance, a wholesale broker, notes that, “After Katrina, a few of our markets would not write coverage in Louisiana but that restriction has now been taken off.” However, according to Donovan, the perceived increase in E&O claims has resulted in some higher retention requirements, higher premiums and more selective underwriting.

What coverages should an adjuster purchase and what are particular coverage concerns?

The professionals all agree that both the commercial general liability (CGL) and the adjusters E&O coverages should be written with the same carrier and in the same policy whenever possible. This approach prevents conflicts that may trap the insured in the middle without coverage. According to Adamski, personal injury coverage is a must because of the investigatory nature of many of the services adjusters provide. He has not seen a restriction of the coverage, but is concerned with the various mold exclusions that are becoming more commonplace. Lindstrom also cautions about mold exclusions causing major gaps in coverage for the insured. Cardon provides a word of caution. Since coverage is written on a claims made basis, “buyers should be careful of purchasing limited ERP options.”

What limits and forms are available?

The adjusters E&O marketplace is not equal for all types of adjusters. A number of insurance companies write independent adjusters. According to Jenny Driskell of wholesale broker Gresham and Associates and other experts, there has been no change in pricing. Both admitted and nonadmitted carriers write the business and, while $1 million limits are the standard, some carriers write limits ranging from $5 million to $ 10 million. According to Lindstrom, "Coverage is fairly standardized and larger firms may be able to negotiate special endorsements in admitted companies, such as Chubb or AIG.” Donovan remarks that, “Larger, more sophisticated insureds will almost always negotiate more comprehensive coverage, regardless of the specific class of E&O. This is partly due to their having risk managers, consultants and/or brokers with more E&O experience.” In addition to admitted and non-admitted carriers, CPLIC is a risk retention group formed to write insurance adjusters other than public adjusters.

Public adjusters are not viewed in the same generally positive light as independent adjusters. According to Lindstrom, she has six markets writing independent adjusters but only one willing to write public adjusters. Donovan observes that the market is more restrictive for public adjusters and that they are very selective when writing a public adjuster. Vaccaro says that Eastern Special Risk does not write public adjusters because they find them unpredictable and therefore difficult to rate.

Katrina forced the insurance industry to take a hard look at its claims handling practices and procedures, along with its manpower demands and ability to respond. While insurance companies may be revamping their procedure manuals and instructions, doing so does not suggest less reliance on independent adjusters. According to MarketStance, projections are that this industry will continue to grow. This means that coverage demands should also increase, provided independent claims adjusters understand their need for protection and stop relying solely on the coverage provided by their contracted carrier.