1 Aon Risk Solutions Considerations for Financial Advisors Regarding Corporate E&O Insurance Coverage January 2015 Risk. Reinsurance. Human Resources.
2 Introduction Recent statistics indicate that the number of claims against financial advisors brought as a result of an error, omission or negligence in the provision of their professional services remains steady year-over-year. The costs of these claims can be significant for advisors and the companies that employ them. Even if a claim is baseless, there is substantial cost involved in retaining counsel and proceeding to litigation or negotiating a settlement. To address this potential risk, financial advisors purchase individual professional liability insurance (E&O) coverage. However, there is a common misconception that individual advisors insurance will also provide sufficient protection for the company that they own or that employs them. The reality is that an advisor s individual E&O insurance will not provide full coverage for the corporation. If a financial advisor is the owner of a company that has licensed advisors operating under the company name or placing business through the company, or the company employs unlicensed employees, the advisor should obtain separate E&O insurance coverage for the company in order to fully transfer its risks. This separate corporate E&O coverage should also be in place where advisors are using a corporate name on their business cards, letterhead or using an incorporated entity for the purpose of being paid commission.
3 Potential liability for the company It is not uncommon for a financial advisor who owns a small company to rely on the coverage that will be provided to the company as part of the individual E&O insurance policies of its agents. However, this coverage is typically limited to the vicarious liability of the company. A policy providing vicarious liability coverage will provide the company with coverage to the extent that it suffers a loss as a result of its legal liability with respect to a wrongful act of one of its employees or agents. It will not respond where the company faces a claim alleging that the company itself has committed a wrongful act. Therefore, there are a number of situations where the company may not be covered by a policy providing only vicarious liability coverage, including: A loss arising from the professional services provided by a former employee of the company who has left the company. If an advisor is no longer employed by a company, the company may not have continued vicarious liability coverage for their actions. Nonetheless, a company may be named in a lawsuit against a former employee for errors, omissions or negligence with respect to the services they provided while employed by the company. Claimants will often name a number of parties to ensure that they capture all those who may be liable. In addition, if the advisor was conducting business under the company name, a client who is unable to remember the previous advisor may name the company as a defendant from whom they can possibly recover damages. Where the company is named directly in a lawsuit, vicarious liability coverage will not be sufficient to provide protection from a direct claim against the company for its own wrongful acts. A loss arising from the conduct of unlicensed administrative support staff. Many companies employ administrative staff and other employees who are unlicensed and do not have E&O insurance coverage. These employees will not likely qualify as insureds under the individual E&O coverage of the company s advisors. Therefore, the company s direct or vicarious liability with respect to any loss arising from the actions of unlicensed support staff will not be covered without a separate E&O policy for the corporation. A loss arising from the conduct of an advisor who failed to maintain E&O coverage, failed to comply with the Policy Terms and Conditions or is no longer licensed. Where a company does not have separate E&O insurance it would have to rely on the coverage of its employees and agents over which it has limited control. Advisors employed by the company may change their coverage, fail to pay their premiums, fail to comply with the Terms and Conditions of their Policy (ie. are late in reporting a claim), or purchase a policy which does not have a vicarious liability rider; all of which may put the company in jeopardy in the event that there is a claim. If an advisor is no longer licensed they will no longer qualify as an insured under the professional liability policy and the company will lose any vicarious liability coverage with respect to their actions. A loss arising from the business conducted through the company which falls outside of the advisor s E&O policy coverage. Some companies allow agents to provide a fee-for-service business through the corporation, using the corporate name. If a claim arises against the agent as a result of these services, this fee-for-service business may be seen as an outside business activity which will not be covered by the advisor s E&O insurance. A loss arising from the negligence or a wrongful act of the company. There are situations when a company may face a direct claim that includes allegations of negligent hiring, supervision or training. In the event that a company faces a claim for a loss arising from the company s negligence or wrongful act, an advisor s E&O insurance will not respond to cover the costs of the company. 1 Considerations for Financial Advisors Regarding Corporate E&O Insurance Coverage
4 Regulatory considerations In certain provinces, provincial regulators require member companies to have separate corporate E&O coverage. However, regardless of whether it is required by the jurisdiction in which the company is operating, it is a prudent business practice to obtain separate corporate E&O insurance. Other considerations Depending on the way that they carry on business in Canada, the owner of a company may find themselves financially liable for the company s debts and obligations in some cases. As a sole proprietor of a company in Canada, the business owner assumes all of the liability of the company. Further, the limited liability that an owner obtains when a company is incorporated may not completely shield the personal assets of the owner where they have provided a personal guarantee when entering into a loan, lease, credit agreement or contract, or where they fail to keep their personal finances separate from those of the corporation. Examples of claims In a recent 2013 case before the Manitoba Court of Appeal, a claim was brought against insurance agents for alleged negligence, negligent misrepresentation, breach of contract and breach of fiduciary duty regarding provision of a retirement plan to the Plaintiffs. The corporation that employed the insurance agents was also initially named in the action. The lawsuit against the corporation was eventually In Quebec, where a financial advisor continued to sell a product that was no longer supported by the company, the court found the company liable for damages on the basis that it failed to fulfill its duty to its clients to act diligently. The company was found liable for failure to adequately oversee its employee s conduct and for failing to alert the client that it no longer endorsed the product being sold by the advisor. 2 dropped, but not before legal costs were incurred. 1 Key take-aways Separate E&O coverage for the company will: Remove the uncertainty surrounding a company s coverage that exists when relying on coverage provided in agents E&O insurance Respond when a company is faced with a direct claim Respond when a company is named as a separate defendant in an action against one of its agents Provide coverage when a claim is brought as a result of fee-for-service business provided by an agent through the company Provide consistent coverage to the company instead of coverage which is limited and fragmented NOTES: Geisbrecht v. Canada Life, (2013) M.J. No. 160 (Man. C.A.) Rhind v. Digital World Financial Inc., 2007 QCCS 656 (CanLII) 2 Considerations for Financial Advisors Regarding Corporate E&O Insurance Coverage
5 Prepared by Jennifer Drake Legal and Research Practice Group Contacts National Brad R. Lorimer National Director t Marie-Frédérique Senécal National Broking Manager t Regional Vancouver Catherine Richmond, LL. B., CRM Regional Manager t Calgary Desiree Money, CAAC, CRM Vice President and Manager t Montréal Catherine Lanctot, B.A. Vice-President, Team leader Financial Service Group t Toronto Jerusha Figlarz, B.Sc., CRM Broker t Denise Hall Ontario Manager t Aon Risk Solutions/ Considerations for Financial Advisors Regarding Corporate E&O Insurance Coverage 3
6 About Aon Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/ manchesterunited to learn about Aon s global partnership with Manchester United. Aon Reed Stenhouse All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Risk. Reinsurance. Human Resources.
Issues Paper Managing General Agencies Life Insurance Distribution Model Agencies Regulation Committee February 2011 This document reflects the work of regulators who are members of CCIR. The views expressed
Insurance and Reinsurance 2010 British Virgin Islands British Virgin Islands Michael Burns, James McConvill and Heidi Maharaj Appleby www.practicallaw.com/1-501-3313 MARKET TRENDS AND REGULATORY FRAMEWORK
Risk Transfer: A Strategy to Help Protect Your Business Risk Control Businesses rely on crucial relationships with contractors, subcontractors, vendors and consumers. In these relationships, agreements
Network Security & Privacy Risks in the Health Care Industry May 2012 Aon Broking - Professional Risk Solutions 2012 Aon plc Brief Description: Conditions are ripe for health care organizations to fall
NOTES on Funding Your Claim Funding is important because with some forms of funding you might be required to pay costs (either to us or to the defendant). As such, we set out the options. For the reasons
Small Business Financial Services Agreement * Trademark of The Bank of Nova Scotia, used under licence (where applicable). Registered Trademark of The Bank of Nova Scotia, used under licence Visa Int./Lic.
Insurance Operations Claim Procedures and the Claim Adjustment Process Claims adjusting is the process of determining coverage, legal liability, and settling a claim. The claim function exists to fulfill
Aon Risk Solutions Aon Trade Credit Unlocking the Value of Trade Credit Insurance Trade Credit and the Global Economy If your business crosses borders, consider these questions: Do you regularly sell to
JANUARY 2015 Detail from Sea Hook by Trevor Bell SRA Handbook 2011: in house lawyer guide Who should read this guide? This guide has been written for in house lawyers, that is to say: solicitors admitted
CLIENT IDENTIFICATION AND VERIFICATION RULES INTRODUCTION The Rules require lawyers to follow certain client identification and verification procedures when retained by a client. The Rules also require
Financial Services Commission of Ontario Commission des services financiers de l Ontario SECTION: INDEX NO.: TITLE: APPROVED BY: Investment Guidance Notes IGN-001 Buy-In Annuities for Defined Benefit Plans
QBE North America Aerospace product liability management Contents page set up as folder Contents Introduction: Our expertise with managing risk makes your vision possible. do not print Introduction 1 Why
Comptroller s Handbook AM-RPPS Asset Management (AM) Retirement Plan Products and Services February 2014 Office of the Comptroller of the Currency Washington, DC 20219 Contents Introduction...1 Types of
insurance matters professional liability insurance for retired LAWYERS, estate trustees, emeritus LAWYERS, judges and others no longer engaged in the practice of law LAWPRO logo and name are registered
A Guide To STArTinG A BuSineSS in MinneSoTA Small Business Assistance Office Minnesota Department of employment and economic Development A Guide To S TA r T in G A Bu S in e SS in M in n e S o TA is updated
A Guide to Non-Life Insurance Regulation in Ireland Contents A Guide to Non-Life Insurance Regulation in Ireland Introduction Page 2 Regulatory Regime Page 4 Authorisation Page 6 Organisation and Supervision
2015 Consumer Protection Code 2012 Chapter TABLE OF CONTENTS Page 1 Scope 4 2 General Principles 7 3 General Requirements 9 Restrictions 11 Conflicts of interest 14 Personal visits and contact with consumers
A guide to BP s Dividend Reinvestment Plan This is your plan Contents About the DRIP 2 Participation and eligibility 4 Taxation 7 Terms and conditions 9 Contacts Back cover As part of our services to holders
Version 4.2 This document provides some additional information to help you understand the financial planning concepts discussed in the SOA in relation to. Important information This document has been published
Homeowner Property Damage Insurance and Commercial Property Damage Insurance Insurance is a fact of life and having the right insurance policy can make the difference between obtaining coverage for a loss
A Privacy Handbook for Lawyers PIPEDA AND YOUR PRACTICE Table of Contents Introduction...1 Privacy Issues in Managing a Law Practice...6 Privacy issues in Civil Litigation...16 Conclusion...26 Endnotes...28
Guideline 6A: Record Keeping and Client Identification for Life Insurance Companies, Brokers and Agents Rev. 2014-02 Guideline 6A: Record Keeping and Client Identification for Life Insurance Companies,
White Paper Life Insurance Coverage on a Key Employee www.selectportfolio.com Toll Free 800.445.9822 Tel 949.975.7900 Fax 949.900.8181 Securities offered through Securities Equity Group Member FINRA, SIPC,
Managing Legal Malpractice: A Professional Liability Risk Management Handbook for Lawyers It s Chubb. Or it s Chance. 2005 Chubb & Son, Inc. MANAGING LEGAL MALPRACTICE: A PROFESSIONAL LIABILITY RISK MANAGEMENT
SECTION 10 CONTRACT INSURANCE AND INDEMNIFICATION PREFACE How can this Contract Insurance and Indemnification information help you? Explains risk analysis: Helps you to analyze the potential risks associated
Australia Jocelyn Kellam, Fred Hawke, Amanda Turnill and David Gerber Clayton Utz www.practicallaw.com/7-504-6424 Market trends and regulatory framework 1. Please give a brief overview of the insurance