This article is a companion piece to this video

In this episode of On Subrogation: Subrogation Against Errors and Omissions Policies, Rathbone Group attorney Jason Sullivan discusses these contingency liability policies and the opportunities they may present for subrogation recovery in cases of underinsured or uninsured carriers/motorists.

Misadventures in Insurance: Pursuing Subrogation Recovery from Someone Else’s Mistake

We’re only human. Sometimes a coverage issue in a contested insurance claim has nothing to do with the incident, the loss or the policy. Sometimes an agent simply made an error or omission. Enter: errors and omissions insurance policies. 

Errors and omissions policies are insurance provided to professionals to cover their liability in cases of harm/damage caused by a mistake. In the world of insurance subrogation, this coverage kicks in when insureds may have been harmed by an agent’s mistake, i.e. they did not receive coverage they should have.

Jason provides a hypothetical to illustrate:

Your daughter turns 16 and gets her driver’s license. You call your car insurance agent and tell them you need her added to your policy. They ensure they will add her right away, so you move on assuming that they, in fact, have done that. 

For months, your daughter drives without issue. Then, one day she is in an accident that is her fault. You go to submit a claim for the damages only to discover she is not an insured driver on your policy and so she is not covered. You relay that you had spoken to your agent months ago, so they must have made a mistake that resulted in her not being on the policy, whether they forgot or filled out a form incorrectly, etc.

This is where an errors and omissions coverage comes in. The insurance agent made a mistake that caused you to have to pay for damages that should have been covered under your policy but were not because of the agent’s mistake.

The way these policies work is that the agent’s errors and omissions carrier steps into their role and assumes the liability. The claim is paid out to the insured as if directly from your car insurance carrier.

Case Study in Subrogating Against Errors & Omissions Policies

Jason cites a recent uninsured motorist subrogation case where a client had paid out over $250,000 and they were having trouble finding a way to recover:

The client’s insured was in a horrible accident with a tractor-trailer commercial vehicle that was operating in the course of business. It turned out that the vehicle was newly-acquired and the commercial carrier had forgotten to add it to their policy. Their liability carrier was denying coverage for the loss, which is why the client paid out the claim under uninsured motorist benefits.

Jason decided why not push the opposing party a bit more to get them to explain what happened that left that truck off the policy and led them to deny coverage. Eventually, he received a call from an errors and omissions carrier looking to resolve the subrogation claim. It was clear the carrier had identified a mistake made by their agent, however, they never disclosed exactly what it was.

The moral of this story is the second look at the subrogation claim. Without pursuing the possibility of errors and omissions coverage, the client was facing subrogation against an uninsured motorist at a small trucking company with little to no assets to pursue. But with persistence, they uncovered a mistake that triggered errors and omissions coverage, and the client fully recovered that $250,000+ loss.

Alternate Recovery Resources: Tips for Uninsured Motorist/Carrier Subrogation

There are three important things to note about this trucking case that apply to errors and omissions matters in any type of subrogation case:

1. Be persistent. Ask the tortfeasor about whether the agent made a mistake and suggest that errors and omissions coverage may apply. If Jason’s client had seen the small trucking company and walked away thinking there was nothing to collect, they never would have identified a mistake and achieved subrogation recovery.
2. You won’t always have all the information. They may never tell you what the mistake was or why it happened. But don’t look a gift horse in the mouth – at the end of the day, your client fully recovered under the errors and omissions policy. It’s not necessary to know exactly what those errors and omissions are.
3. As a subrogating carrier, you do not have a direct cause of action against the errors and omissions policy. As a third party, you are not part of the contract between the agent and the carrier, and you’re likely not a third-party beneficiary legally, either. The tortfeasor is the third party beneficiary between the agent and the errors and omissions policy, not the subrogating carrier. 

So, to utilize an errors and omissions policy in your subrogation pursuit, you cannot directly sue an agent or their underwriters to access the coverage. Instead, you have to push the tortfeasor who has a denial of coverage to push for that coverage to kick in.

Want to know more about the subrogation process and other important topics in insurance law? On Subrogation is Rathbone Group’s free educational resource for insurance professionals looking to learn more about subrogation. You can find our On Subrogation series in video and podcast form. Have a question we haven’t yet discussed? Reach out at [email protected] or [email protected] to suggest a topic for a new episode.