What is the next innovative liability coverage that fills a real need, but is not yet fully appreciated in the marketplace?

Let's think back to the 1980s, when most people thought “EPL” was a cruise line. Since then, a lot of premium (and commission) dollars have been spent on employment practices liability insurance. Many insureds have been protected from what could have been a “bet the company” claim, and many insurance brokers are unsung heroes for having strongly recommended that their business clients buy the strange new coverage called EPLI.

Related: Read Louie Castoria's previous Avoiding E&O column, “Check your list twice.”

Even today, EPLI has not fully reached its natural market. It's amazing that nearly 20 years after Justice Clarence Thomas was confirmed to the Supreme Court in 1991, people still need to be reminded of the risk of EPL claims.

So what is the next EPLI? In my view, it will be miscellaneous professional liability insurance, or miscellaneous E&O. The product is not new, but it lacks a clearly descriptive title or a watershed event to bring it to people's attention, such as those that EPLI still benefits from.

When CGL isn't A-OK

Some insurers include traditional professional liability lines in their miscellaneous E&O departments–even including insurance broker E&O–but the real idea behind miscellaneous E&O is that businesses of nearly every kind are exposed to some risks that go beyond the broad form commercial general liability (CGL) quartet of coverages: bodily injury, property damage, personal injury and advertising injury. Put together, those four horsemen of the business apocalypse sound fairly comprehensive, but they're not.

Note: The “c” in CGL used to stand for “comprehensive,” but the Insurance Services Office wisely switched it to “commercial” because some insureds, particularly those who had large, uninsured losses, thought in retrospect that they had coverage for all risks because the policy said that it was “comprehensive.”

Related: Read August's Avoiding E&O column “Meet and document customer's reasonable expectations.”

As the U.S. economy shifts away from manufacturing products and toward providing services, businesses are more likely to be sued over what they do than what they make. Those services may involve a physical contact with the consumer, as in day care centers, but in many instances the service is simply giving advice to the consumer. Giving advice to another for a fee does not sound like an activity that is likely to cause bodily injury, property damage, personal injury or advertising injury, though those kinds of claims are made against advice providers.

Mental game

Many traditional professions–insurance brokers, lawyers, accountants, architects and doctors, for example–give advice as part of their service. The advice may result in something tangible occurring: an endorsement being added to a policy, a contract being signed, a tax deduction being claimed, a particular amount of rebar being encased in concrete, a surgery being scheduled. Those physical actions occur because the professional has first thought about the customer/client's needs and recommended a plan of action to meet them. As Yogi Berra said of his profession, “Baseball is 90 percent mental and the other half is physical.”

Yogi's math may have been off a bit, but his observation is spot-on for many modern businesses. There are at least two opportunities to commit an error–the same for an insurance broker as for a shortstop–during the mental stage of deciding what should be done, and during the physical stage of executing that plan. Either way, the player can be charged with an error.

Covering a lot of ground

Late in 2009, I conducted a highly unscientific survey of the businesses that can be covered under miscellaneous professional liability policies issued by several major liability insurers by checking their websites and marketing materials. The results surprised me, especially the diversity of the businesses. Click here for a chart showing the results of my survey, and let me apologize in advance to any carrier whose products were mischaracterized in my efforts to compare apples to oranges. I loosely grouped the businesses into outsourcing and consulting services, though that was for my convenience and not a distinction made by the carriers.

Among the outsourcing service providers I found such varied businesses as human resource department vendors, call centers, seminar providers, property management services, electronic data processors and freight forwarders. These businesses reduce or eliminate their clients' need to maintain in-house departments to perform the same functions.

The consulting services were even more diverse: telecommunications consultants, tour operators, expert witnesses, credit counselors and ad agencies, to name a few.

The purpose of miscellaneous E&O is not to put call centers on the same professional playing field as, say, neurosurgeons, but to recognize that call centers are exposed to risks that may go beyond the scope of their CGL policies.

Carriers' approaches to miscellaneous E&O are like snowflakes: no two are alike. Some insurers have a somewhat standardized base form, to which endorsements are added to describe the scope of the covered professional services; others have tailored policy forms for certain businesses. The policy forms are myriad, requiring careful comparisons by the broker to match, or try to adapt, the form to the applicant's needs. Some are add-ons to other kinds of coverage, much the same way that EPL coverage used to be with some markets.

Although my survey was not exhaustive, there were several similarities among the miscellaneous E&O products offered. Most were written on non-admitted paper. All were on a claims-made or claims-made-and-reported basis. All covered defense within the policy limit, sometimes called “wasting limit” or “self-consuming” policies. These are common features of most professional liability policies.

Some carriers group mainstream professions under their miscellaneous departments. I found insurance brokers, real estate brokers, trustees, cyber liability and public officials listed as miscellaneous by some carriers. This appears to be an organization chart matter rather than a substantive one. Underwriting and claims departments can be more nimble in responding to trends if their people are not locked into single-profession cubicles, though carriers that insure very large programs in a single professional line, such as medical or accountants, are less likely to call them miscellaneous.

Give concrete examples

We've addressed why miscellaneous E&O policies exist and how some insurers are classifying this relatively new type of coverage. But how can a broker explain the need for an additional insurance policy to a client?

The answer is probably no further away than your client's website. Rather than giving esoteric explanations using Yogi Berra's math, look for the services that your client actually provides, as proclaimed from the rooftops of the Internet. These days, many businesses are looking to increase revenue by unbundling advisory services and charging additional fees for them. Look for the services that have verbs such as “advise,” “manage,” “assess,” “design,” “provide” and “consult.” Those words are clues that a miscellaneous E&O risk may be lurking in the underbrush.

I visited the website of a staffing agency picked at random from a Google search. Along with temporary and permanent employee placement services, the agency's website lists:

• Outplacement
• Payroll services
• Background checks
• Skill assessments
• Software tutorials
• Resume screening.

That sounds like a very well-rounded staffing agency. It also sounds as if there are risks attendant to those services that may not fit within a CGL policy. For example, assume that a background check misses that an applicant was prosecuted in another state for grand larceny, and the applicant is hired and later electronically transmits $5 million of company funds to his account in the Cayman Islands. The resulting claim would not neatly fit into a CGL policy's coverage; no one was physically hurt, no tangible property was damaged, no one's private right of occupancy was interrupted, and no loss was caused by an advertising activity. Yet there is a substantial loss, and a claim against the staffing agency for having incorrectly advised that the felon's background was clean.

The same type of example, based on services the broker's client actually performs, can help the client understand his or her exposures and need for miscellaneous E&O coverage.

Risk = opportunity

Miscellaneous E&O coverage recognizes that doing business is risky, sometimes in unexpected ways. Helping clients to see their varied needs for miscellaneous professional liability insurance can greatly reduce their risks, and the cost in premiums can be quite reasonable, especially after a claim has been made.

Miscellaneous E&O also gives brokers the opportunity to enhance commission revenues, even in an economic downturn, though that motive is secondary to providing the best client service.

Here are take-away points to consider:

• Familiarize yourself with miscellaneous E&O coverage, including the resources available through your surplus line brokers.
• Discuss miscellaneous E&O with existing and new clients, and add it to your checklist of coverages to be considered by the client.
• When a client declines to purchase this kind of coverage, confirm it in writing with a letter or e-mail, outlining the coverages that the client has authorized you to procure or decided not to explore for the upcoming policy year.

Maybe soon, miscellaneous E&O will become as ubiquitous as business auto, worker's comp and EPL. Brokers can help this important protection rise to take its place alongside CGL as a recognized need of many American businesses.