Why brokers may be exposed to E&O risk due to COVID-19

One prominent industry observer is « quite concerned » that brokers may be at risk for errors and omissions due to COVID-19, especially if court decisions go down a certain path.

For Phil Cook, chairman of Omega Insurance Holdings, there is a risk that customers will try to blame their brokers for not receiving pandemic coverage when the courts actually find that these policies did provide some protection.

“At first glance, it’s hard to see that there is a significant level of risk there, but I’m quite concerned about the brokerage community – especially when the courts find that some of our policies covered certain things resulting from COVID and some didn’t . « Said Cook during his Industry Trends & amp; Predictions: 2021 webinar hosted by the Insurance Institute of Ontario.

If courts find that there are options for pandemic coverage but the broker does not give the client such protection, the broker can be accused of not having their clients. « So I can expect a significant number of E&O attempted claims [if that happens], » Cook said. « Whether or not the courts support them is a different matter, but certainly potential for E&O. »

Cook thought about what the coming year might bring. When he started the broker E & amp; O as a possible risk, he spoke in connection with the investigation of possible P & amp; C risks due to COVID-19. Cook’s annual look at P&C industry trends was a virtual event this year.

Phil Cook shares his predictions for 2021 during a webinar held by the Insurance Institute of Ontario.

Regarding directors and officers (D&O) liability, Cook predicts that interest rates will continue to rise as many lawsuits are expected to be directed against corporate executives. « Directors are allegedly held responsible for not providing protection and prevention of spread within their organization, » he said. « So D&O will be a growing area of ​​litigation. »

Business interruption is another risk from the pandemic, although it has not yet been reviewed in Canadian courts. « Of course, we all hope that the courts will examine these issues objectively and we will come to a conclusion that is reasonably favorable to all parties, based on the wording itself, » Cook said.

He also highlighted the potential risk associated with a possible business interruption, but said he needed some direction to gauge the potential impact. These include losses « due to a supply chain breakdown due to government audits, » Cook said. These would be examples of “secondary business interruptions which clearly do not directly harm the business. And that still needs to be checked. has yet to be legally challenged and resolved. « 

In that sense, there is a business interruption loss: This is where a company « could still have made a significant loss because consumers or customers did not want to go into these stores, » said Cook. « However, I don’t think we’ve even seen the beginnings of this part of the potential focus [and] it needs to be the subject of a thorough and intelligent review by the courts. »

Cook also expects a number of claims for damages when it comes to liability for non-protection as well as violations of regulations or government recommendations. Due to lockdowns across the country and more stringent in Ontario and Quebec, customers can be cited, creating liability for non-compliance with regulations and recommendations.

Eventually, at what Cook described as « scary, » the industry could face courts finding coverage in policies that never intended to provide coverage.

« There have been some decisions in the US based on a pure knee-jerk response based on ‘well they should have covered this’, » he said. “And hopefully our courts in Canada will properly examine these types of inquiries and determine whether the wording itself supports this claim or not. However, if an attempt is made to retrospectively rewrite our reporting, our capital is definitely at risk. « 

Feature image from iStock.com/peterschreiber.media

Why brokers may be exposed to E&O risk due to COVID-19
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