In recent years, however, a new group of business professionals known as “blended service providers” has emerged, members of which offer a mix of two or more related services to deliver a broader range of services to clients from a single source.

This evolution to become a “blended service provider” may complicate an individual consultants or companys insurance coverage. A commercial general liability policywhich typically covers premises, operations, products and completed operationsmay not be affected.

However, an errors and omissions professional liability policywhich covers specified professional activitiesmight be harder to come by, or at least will need to be examined. Or the E&O policy may need to be moved if a current broker, agent or provider does not write coverage for blended service businesses.

Its an all-too-common and dangerous misconception that a CGL policy is sufficient for a business with a professional liability exposure. Although CGL coverage is important for most businesses, it is triggered by a bodily injury or property damage. It does not address a situation when a client alleges he has suffered a financial loss absent any bodily injury or property damage occurring. Indeed, many CGL policies specifically exclude professional liability exposures. And the professional who adds more services is that much more vulnerable to service breakdowns and lawsuits.

The truth is, professionals can be suedeven the most diligent and experienced. Unfortunately, if a recommendation or decision is perceived (rightly or wrongly) to have caused harm to a client by the commission of an error or an omission in the performance of professional duties, potentially costly and messy lawsuits are not only the possible but, increasingly, the probable result.

The “traditional” classes of professionals recognize the need for professional liability coverage. However, the importance of E&O professional liability insurance to “miscellaneous” classes of professionals is less pronounced.

Such coverage is not difficult to obtain for most single service providers, but the same is not necessarily true for the blended service provider. Blended services are harder to underwrite, so many insurers do not offer E&O coverage for them. Yet protection for these businesses that wear more than one hat is critical.

For example, consider the hypothetical case of a business application software designer who decides to also offer IT staffing services. The two businesses are related, but carry very different exposures. A longtime buyer of the software design services then hires the firm, which we will call ABC Company, to provide IT staffing.

ABC sends a staffer to work on the clients IT system, and the staffers work allegedly causes the system to crash. The clients system is down for a day, resulting in lost sales, lost data, and costs to reprogram the computer system. The client sues ABC for damages.

The blended service providersthat is, miscellaneous professionalsshould make sure that their CGL and MPL policies have no coverage gaps. Most CGL policies contain endorsements that exclude coverage for professional liability and, conversely, some MPL policies exclude bodily injury, property damage and personal injury.

The fact that there is no standard MPL policy also can complicate coverage issues.

The peculiar nature of a claim can find costly cracks in coverage between the twofor example, when someone suffers bodily injury, property damage or personal injury as a result of an error or omission in professional services.

Classic examples include home inspectors, auto claim adjusters or employee placement services. For these service providers it is important to purchase coverage from an insurer that will afford contingent bodily injury, property damage or personal injury in order to prevent these claims from being denied by both the MPL and the CGL insurer.

In an ideal world, a professionals agent would arrange both CGL and MPL coverage with the same insurer to better provide seamless coverage. But even in a best-case scenario, it is important to read and evaluate both coverage policies to avoid such exposures.

When applying for or reviewing coverage for MPL E&O coverage, ones insurance and legal counsels should scrutinize the policy. This review should determine that they adequately address and delineate the following: judgments; settlements and claims-handling expenses arising out of services designated on the declaration page; covered territory; covered damages; covered defense costs; claims settlement procedures; exclusions; coverage additions; and coverage triggers.

Keep in mind MPL policies typically dont cover “predecessor organizations”firms established before the current insured organization in which one or more individual insureds were once involved as partners or ownersunless specifically named on the policy. They also do not, as a rule, cover independent contractors.

Because there is no standard MPL policy, provisions differ from insurer to insurer, and manuscript endorsements are added based on professional services covered.

However, some MPL insurers have identified a wide range of miscellaneous professional classes and typical service profiles within them, and developed application forms to facilitate the process of determining coverage.

The list of miscellaneous professional classes can seem limitless (see sidebar). While not the “butcher, the baker, or the candlestick maker,” the professionals who comprise this class are equally as diverse. They literally run the gamut from “A to Z,” from advertising executives to zoo exhibit designers, and a whos who of categories in between.

All are dangerously vulnerable to MPL E&O suits, especially in this increasingly litigious environment. Few could afford the out-of-pocket expense of mounting a defense, let alone the cost of a judgment or settlement. Nor could one likely afford the costs to their businesses of the loss of their time, expertise and potential income during the time devoted to the lawsuit.

To avoid, or protect oneself against, such a scenario, its smart business sense for every miscellaneous professional to anticipate such events and make sure that he or she has the right E&O coverage that fits his or her current exposures to risks that can come from anywhere, anytime, from anyone.

Mary K. Saunders, CPCU, ARM, is an assistant vice president specializing in E&O coverage for Shand Morahan & Company Inc., a wholesale-dedicated surplus lines insurer based in Deerfield, Ill. For more information, go to www.shand.com.

Sidebar #1:

Flag: By The Numbers

Head: Suits Can Be Steep

Lawsuits can often be expensive. Shand Morahan's data file for the period 1990-1999, as of Dec. 31, 2001, reflect the following hard facts about the cost of defending an E&O lawsuit:

35.9 percent of claims result in some cost to the defendant.

$22,649 is the average amount for defending a claim that closes with just legal expenses.

$119,170 is the average loss amount paid per claim.

$163,123 is the average combined loss and expense amount paid per claim when the defendant is found guilty.

Sidebar #2

Flag: What's My Line?

Head: Service Providers Blend In

Shand Morahan & Company identified miscellaneous professional liability coverage classes within which a policy can be written to protect one or a blend of services, including:.

Computer Professionalsincludes data processing, software development, systems analysis and design, help desk service/support, Web page designer.

Inspection Serviceshome inspector, building code compliance inspector, elevator inspector, insurance inspector, safety inspector.

Property-related servicesappraiser, leasing agent, property manager, real estate agent, title and escrow service.

Consultantsmarketing, management, geological, security, benefits.

Insurance-related servicesbenefit plan administrator, claims adjuster, actuary, risk manager, safety engineer.

Medical-related servicesmedical billing auditor, contract research, medical statistical analysis, medical transcription.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 11, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.