Are Two E&O Policies Required For Two Businesses?

[calbears]

I have my appraisal business and of course I have E&O insurance. My friend also has his own appraisal business and E&O. Most all of our work is through AMCs, respectively. We are partnering to form a joint appraisal business doing only non-lender work, while maintaining our original businesses. My E&O company tells me we need to get a separate E&O policy covering the business and that my existing policy does not cover work under the partnership. My partner's E&O company told him that his policy is all that he needs. They told him that in our partnership, whoever signs the report is responsible for it and if he signs it his existing policy will cover him. They also told him if we got another policy for the partnership, it would essentially be double coverage.

It sounds as if my company is trying for a money grab. Does anyone have any experience with something like this? I know it is probably somewhat unusual. Any info would be helpful.

P.S. I emailed my company today explaining how my partner's company is handling it and asked them to confirm I have to get a second policy. I added that if true, I will be looking to cancel my policy and go to my partner's company. No word from them as of this writing.

 

[Terrel L. Shields]

Sounds like time to switch E & O...so? who is your carrier?

 

[JTip]

You need another policy. I sold P&C insurance for over a decade.

The issue is the business name/ownership and exposure.

You have your own, he has his. Each policy is named for each of you with related exposures. Together, with two appraisers, a new name and now two exposure issues, would require a new policy under the partnership name.

It's like if you drove a dump truck and you buddy drove one, both hauling coal for the power plant. You go in together and buy a dump truck (joint ownership) to sell coal to homeowners.

I wouldn't suggest threatening dropping your policy just because you don't understand why, they are telling the truth.

 

[Tom D]

i notice that the company name & my name are both on the policy. people sue everyone, and if your company name is not on the policy it is not covered. i would think you are covered by whatever policy your name is on. if future money comes in that company name it can be grabbed if the company does not defend itself, and gets a default judgement.

 

[calbears]

Thank you for your thoughts. To JTip, canceling my policy and going somewhere else is not a threat. If one company wants to charge me double and another doesn't for my scenario, then going somewhere else is good business, not a threat. Also, though you say they are correct in charging me for second policy, that doesn't answer why another company doesn't; You may be correct but I still don't know. My declaration page on my E&O policy only lists my name, not my company name. The fine print continually refers to the "Named Insured." Nothing about a company. Again, you maybe absolutely correct and maybe my partner got bad information from the person he spoke to at his E&O company. Thanks again.

 

[JTip]

The 'named insured' is simply who the policy covers under the existing AND disclosed risks.

If you are a CR, insured with an E&O, and complete a commercial appraisal, you will not be covered. Not only because you cannot complete commercial appraisals, the risk was not disclosed to underwriting so you policy would not cover those events.

The problem with your situation is simply the 'partnership'. Forming a legal entity will generate a new risk, not associated with your current 'named insured' policy. Having a policy in your name does not give blanket coverage for all your endeavors with parties.

Calbears policy will not cover ABC Appraisal Service (as a partnership). ABC Appraisal Service, as a Named Insured, will cover any and all disclosed appraisers under the partnership. If the partnership gets sued, your Calbears policy will have nothing to do with it; it insures YOU not the partnership.

 

[JTip]

On the flipside......

If you partnership, ABC Appraisal Services, gets into property management or becomes a brokerage, these additional segments of the business can be insured under the ABC name. Instead of having appraisal service risk, you now have real estate risks and will be rated accordingly, all under the 'named insured' of ABC.

You can tile coverage/exposure under a named insured but a named insured policy cannot provide broad coverage over different entities. Once your appraisal says ABC, your policy will not cover that exposure.