The claims E&O is meant for
A fund losing money isn’t, on its own, a claim. Disputes tend to be about the gap between what the documents said and what the firm did: investing outside the stated guidelines, a valuation an investor disputes, or a conflict that wasn’t disclosed.
E&O is written with those allegations in mind, but only for the services the policy defines, and exclusions still apply. We go through everything the firm does, including work through affiliates and anything outside your usual mandate, and check that the application and the policy both reflect it.
Cover for fixing your own mistakes
Sometimes the firm catches its own error first, like a trade placed in the wrong account or for the wrong quantity. Some policies include cost of corrections coverage, which can pay to fix the mistake before any investor complains.
It isn’t automatic. It usually has to be added to the policy, it has its own limit and retention, and you generally need the insurer’s consent before you spend anything. We ask for it when we go to market, and we walk your operations team through the process and who to call.
Shared limits and switching insurers
E&O for investment firms is often sold together with D&O in a package called general partners liability (GPL). GPL is the name of the package, not an extra coverage. We tell you whether D&O and E&O share one limit and whether legal fees reduce it.
Changing insurers is where coverage for past work can be lost. These policies cover claims made while the policy is active, often only for work done after a set retroactive date. Something you already know about generally has to be reported to your current insurer before you leave. When we move a program, we check:
- Which entities and services the new policy covers
- The point at which a regulator’s inquiry counts as a claim
- Whether legal fees come out of the limit
- Which costs, remedies, or contractual promises are excluded
Comparing proposals
When two proposals have similar prices and limits, the difference is in the fine print. We read the full policy forms, not just the summaries, and put the differences in writing so you can decide.
To get started, send us a description of your services, an entity chart, and your current policies. Tell us about any change in strategy or client type, and any investor requirement behind the purchase.
What happens when the coverage doesn’t fit
Having insurance doesn’t settle what it covers. The public court record below involves other firms, not Cilantro clients, and each outcome depended on its own facts, policy language, and governing law.
Bruckmann, Rosser, Sherrill & Co. v. Marsh USA
A private equity firm settled a lawsuit and then sought more insurance money than it had received. The dispute was about whether the limits of two policies could be combined.
The 2011 New York opinion records a $33.5 million settlement, $6.9 million in legal fees that came out of the policy limits, and $20 million paid by insurers in total. The court enforced clauses that prevented the two limits from being added together. It did not make a final finding that the broker was negligent.
What we check for you: Whether your policies can be combined, and how much of each limit legal fees can use up, before you count on the total.
New York Appellate Division opinion, June 28, 2011Further reading
Background from insurers and regulators. These pages describe their own products and rules, and are not an offer of coverage from Cilantro Risk.