Delving into the Details of Your Insurance
When purchasing a policy, brokers must understand exactly what their contracts mean
By Tom Delaney, managing director, Bankers Insurance Service
Especially in today’s market,
residential mortgage brokers often
have a vested interest in their companies’ insurance policies, even if they
don’t have the responsibility for purchasing
coverage themselves. But many brokers
might not know how to read these policies’
details correctly.
Insurance policies offer coverage
through insuring agreements, the heart of
insurance policies. These agreements typically consist of a broad statement as to what
acts, events or circumstances are covered.
For example, the insuring agreement of
a professional liability policy — also called
errors-and-omissions (E&O) insurance —
for a mortgage firm generally will address
what the insurance company will pay in
the event of a loss. Because E&O policies
respond to litigation that third parties
bring against the insured, defense costs
and damages resulting from a settlement
or judgment rendered against the insured
typically are covered.
After crafting this broad insuring
agreement, the insurer typically will narrow the coverage’s focus through definitions, exclusions, conditions and other
policy provisions. Partly, this is because
no single insurance policy can cover every
scenario. To focus the policy language on
the specific risk transferred to the insurer,
coverage includes restrictions outlined in
the following areas:
■ The insuring agreement
■ The policy definitions
■ The policy endorsements
■ The policy exclusions
Here are examples of how each of these
restrictions could appear and of the language used.
Tom Delaney is managing director of Bankers Insurance Service (BIS), a provider
of fidelity-bond and errors-and-omissions insurance tailored to meet the needs of
mortgage brokers and bankers. Endorsed by the Mortgage Bankers Association
(MBA), BIS develops insurance programs and risk-management services for
the mortgage industry. Delaney serves on the board of directors of the Illinois
MBA and is a corporate adviser for the Massachusetts MBA. Contact him at
(312) 381-3722 or tom_delaney@fprsi.com.
“The insuring agreement of a professional
liability policy — also called errors-and-omissions
(E&O) insurance — for a mortgage firm generally
will address what the insurance company
will pay in the event of a loss.”
Within insuring agreements
Example: “We will pay on behalf of the insured all sums that the insured shall become
legally obligated to pay as damages resulting from any claim(s) first made against the
insured and reported to the insurer during
the policy period for any wrongful act of the
insured — but only if such wrongful act occurs on or after the retroactive date and occurs solely in the rendering of professional
services, as defined herein.”
Analysis: Discovery dates and retroactive
dates often are referenced in the insuring agreement. Retroactive dates define
the prior acts covered by the policy. A
policy written with no prior-acts coverage
essentially has a retroactive date that
matches the effective date of the policy.
No loss arising out of the insured’s prior
activities or dealings are covered.
A policy offering full prior-acts coverage may have a retroactive date listed as
“none.” This means that there is no restriction on how far back the activity that led to
the loss occurred.
In this example, the insuring agreement is further narrowed by defining the
activities in which the insured must be
engaged for coverage to apply. The term
“professional services” specifies which professional acts of the insured are covered.
Continued on Page 35
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