Does E&O insurance cover intentional errors or fraud ?

Whether Errors & Omissions (E&O) insurance covers intentional errors or fraud is significant and deserves a thorough explanation. In general, E&O insurance does not cover intentional, dishonest or fraudulent acts. Here is a detailed analysis of this issue :

Basic principle :

E&O insurance protects against unintentional errors and omissions committed during goodwill professional practice. It is intended to cover situations where a professional makes an unintentional error or accidentally omits to do something, thereby harming a client.

Reasons for excluding intentional and fraudulent acts :

1. Moral hazard : Covering intentional acts could encourage dishonest or negligent behaviour.
2. Insurability principle : Insurance is generally designed to cover random risks, not deliberate acts.
3. Public policy : Public and insurance regulations often prohibit coverage for illegal or fraudulent acts.
4. Costs : Including coverage for intentional acts would considerably increase premiums for all policyholders.

Nuances and exceptions :

1. Employee acts : Certaines polices peuvent offrir une protection limitée pour les actes frauduleux Some policies may offer limited coverage for fraudulent or dishonest acts committed by employees, provided that the insured company was not involved in or aware of them.
2. Legal defence : Even if the act itself is not covered, some policies may cover legal defence costs until it is proven that the act was intentional or fraudulent.
3. Errors of judgment : Even if they seem flagrant in hindsight, an error of judgment may be covered if committed in good faith.
4. Gross negligence : There can be a grey area between gross negligence and intentional conduct. Depending on the policy's specific terms, gross negligence may sometimes be covered.

Implications for professionals :

1. Importance of integrity : Professionals must always act with integrity and in the best interests of their clients without relying on insurance to cover wrongdoing.
2. Policy clarity : It's crucial to understand the exact terms of your E&O policy, including specific exclusions.
3. Training and prevention : Companies must implement training and procedures to prevent fraudulent or dishonest behaviour.
4. Risk management : Developing sound risk management practices can help prevent situations construed as intentional or fraudulent.
5. Communication with the insurer : In the event of a claim, it is essential to communicate openly and honestly with the insurer, even if the situation seems ambiguous.

In conclusion, while E&O insurance offers valuable protection against many professional risks, it is not designed to cover intentional or fraudulent acts. Therefore, professionals must conduct their business ethically and implement systems to prevent and detect inappropriate behaviour. If you are still determining whether a particular situation is covered, it is always advisable to consult an insurance broker or specialist lawyer.