Court finds that Errors and Omissions insurance is not directors and officer’s insurance.In 2011, plaintiff Jane Kelley sued the law firm of Tina M. Dahle S.C. over a $300,000 loan made by Kelley to Dahle. The exact terms of the loan were not agreed upon prior to the loan being made and Kelley alleged that the loan was not being paid off properly. The lawsuit also named the professional liability insurance company Dahle used. Recently, however, a Wisconsin court awarded summary judgment to the insurance company – effectively dismissing the insurance company from any duty to defend or indemnify the matter. This decision was based on the fact that the claim was made against the lawyer’s professional liability policy, but the lawsuit involved a business loan. The court explained that a law firm’s debts and loan activities were never meant to be covered under this type of insurance.
Calculated Risk Advisors explains that there are two main reasons why insurance does not cover a situation. It is either uninsurable (such as punitive damages in many states), or else it is better covered under another type of insurance (car insurance not covering medical payments for yourself). In this case, the court’s reason falls in line with the latter – debt covenants and failure to repay a loan falls under a different type of insurance – namely Directors and Officer’s coverage and would excluded under an Legal Errors and Omissions policy.
• Errors and Omissions (E&O) insurance protects against claims made against a firm for their mistakes, inaccuracies, oversights and lapses while performing a professional service.
• Directors and Officers (D&O) insurance protects against the errors and mistakes an officer of a company may make regarding the actions of the firm.
These two insurance policies go hand-in-hand and many firms purchase both – realizing there are exposures and risks that require both to be covered. If you would like to discuss whether your firm has need of these types of insurance policies, contact us today.