Canada’s commercial insurance brokers are currently negotiating with insurance companies to make sure a disaster endorsement negotiated between them in 2009 will not lead to substantial errors and omissions (E&O) claims against brokers.
The disaster endorsement protects brokers’ clients in case of a public emergency. If a Canadian authority declares a pandemic or other emergency, an insurance policy will not expire or be cancelled by an insurer during the declared emergency.
The Toronto Insurance Conference (TIC), representing 22 of Canada’s leading commercial brokerages, hammered out an agreement in 2009 with the Insurance Bureau of Canada (IBC), representing Canada’s home, business and auto insurers, on the wording of the disaster endorsement. That agreement ensured coverage for property and liability policies is provided throughout an emergency and up to 30 days after the emergency has ended, giving time for the broker, the client and the insurer to renew the policy.
But TIC notes some gaps still exist in the endorsement, potentially exposing brokers to errors and omissions (E&O) claims. Since the endorsement is not automatically read into the policy coverage, brokers must now ask individual companies to include the endorsement – meaning brokers are exposed to an E&O claim if they don’t.
Jack Lee of BFL Canada heads up a TIC subcommittee currently in discussions with insurers about this issue. He illustrates the problem using the following hypothetical scenario.
A client’s policy renewal is due on January 1. A public disaster is declared on December 28, before the policy is renewed. During the public emergency period, the client’s production facility is damaged in an $8-million fire. The insurer denies coverage because the policy was not renewed during the emergency.
A broker’s client might ask the insurer about the disaster endorsement. The insurer could respond by saying the client wasn’t covered by the endorsement “because we weren’t asked by your broker to include it,” Lee says. “And therefore it’s a massive broker’s E&O.”
Lee says TIC has currently received commitment from at least 15 major insurers – including IBC members and non-members – to read in the endorsement as part of their policies.
Aviva Canada, one of the 15 insurers, started incorporating the language of the endorsement into its property and liability policies in 2010. “We did this because it is in the spirit of providing full coverage, treats everyone fairly and made good business sense for both for or broker partners and customers,” said Glenn Cooper, senior manager of public relations and social media for Aviva Canada.