RE 00 01–REAL ESTATE AGENTS AND BROKERS PROFESSIONAL LIABILITY COVERAGE ANALYSIS

(March 2023)

 

Collapsible Menu

Introduction

Section I–Real Estate Agents And Brokers Professional Liability Coverage

A. Insuring Agreement

B. Exclusions

C. Supplementary Payments

Section II–Coverage Extensions

Section III–Who Is An Insured

Section IV–Limits Of Insurance

Section V–Deductible

Section VI–Conditions

Section VII–Extended Reporting Periods

Section VIII–Definitions

INTRODUCTION

While ISO introduced this policy in 2014, many carriers provide this coverage using their own forms. Regardless, this form can be used as an excellent basis of comparison when reviewing coverage among carriers. The policy starts with clear notice that only claims first made during the policy period or the extended reporting period will be considered for coverage.

Similar to other policies, the term ‘you’ or ‘your’ refers to the named insured and the term we, us or our refers to the insurance carrier providing coverage under this policy. These are not the only defined term please refer to Section VIII- Definitions for other defined terms.

SECTION I–REAL ESTATE AGENTS AND BROKERS PROFESSIONAL LIABILITY COVERAGE

A. Insuring Agreement

1. The insurance company agrees to pay amounts the insured is legally obligated to pay as damages because of a wrongful act. However, this insurance must cover the wrongful act.

The insurance company not only has the right to defend any suit brought against the insured, it also has a duty to do so. That duty, which can be very expensive, does not apply to suits brought for wrongful acts that this insurance does not cover.

Related Court Cases:

Defense Arrangements By Insured Required Notice To Insurer

Real Estate Agents And Brokers Policy Held To Cover Claim By Former Employer For Theft Of Business By Former Associates

The insurance company decides which incidents of wrongful acts are investigated. This is very important because Section VI–Conditions states that the named insured is required to report all incidents of wrongful acts. The insurance company receives that information and decides when and if it will investigate such incidents.

The insurance company can settle any claim that may result from an incident. However, the named insured must agree, in writing, to any settlement prior to its being made. This is important to protect the reputation of the insurance agent. However, it is not without consequence. Section VI-Conditions B. Consent to Settle explains that the insurance company does not pay more on the claim than the amount it could have settled for but didn’t because of the named insured’s refusal.

 

Example: Granite Condominiums sued Great Place Real Estate because of the loss in value to the condominium associations and its members due to errors made by Great Place. Great Place’s insurance company reaches a settlement agreement for $60,000 with Granite but Great Place refuses to permit the settlement. The case goes to litigation and results in a jury award of $300,000. Great Place is responsible for $240,000 of the award because they refused the settlement offer.

 

The amount this policy pays is in accordance with Section IV–Limits of Insurance. The insurance company no longer has a duty to defend once payments under this policy use up the limit of insurance.

2. The only additional obligations that the insurance company has beyond what is described in 1. above, are those items specifically described in Paragraph C. Supplementary Payments.

3. Wrongful act(s) that this policy covers must meet all of the following conditions:

Note: Items 4. and 5. below explain what this means.

 

4. The date a claim is deemed to have been received by the insurance company is important because that date determines coverage. It is the earliest of the following:

A claim that the insurance company receives from an insured within 30 days following the policy period is considered received within the policy period. However, this grace period does not apply if there is an Extended Reporting Period or if another policy is in effect.

5. The named insured cannot simply wait for a claim to be presented. It has a responsibility to notify the insurance company whenever a situation arises and the named insured can reasonably conclude that a claim against this policy might occur. The claim date is the date that the situation is reported to the insurance company.

6. All claims that result from the same wrongful act are considered a single claim. The date of that single claim is the date on which the first claim was reported.

 

Example: Jeff, Mary and Tyler each file separate suits against Great Place for the same act for which Granite Condominium Association has filed suit. Even though the dates of filings are different, all are assigned the same date as the Condominium Association’s claim. This makes them all subject to the Each Claim limit of insurance because they are all considered a single claim.

 

Related Court Cases:

Law Firm's Failure To Give Notice During Policy Period When Claim Was Made Negated Coverage

Retroactive Date Identical To First Day Of Policy Effectively Eliminated Coverage For Prior Acts

B. Exclusions

1. Abuse and Molestation

Coverage does not apply to any claim that is related to abuse or molestation that occurs while an insured is providing professional services. This exclusion applies regardless of who is abused and who does the abusing. The exclusion applies if the abuse or molestation actually occurred or was only threatened.

 

Example: Jay and Mary want to walk through a house without their realtor Paul or their son, Jacob. Paul agrees to take Jacob to the park while Jay and Mary explore the house more fully. A week later Paul receives notice that not only are Jay and Mary not buying the house, but he is also being sued for abusing Jacob during the park excursion. The insurance company refuses to defend him even though he strenuously denies anything occurred.

 

2. Adequate Insurance

This is real estate agent and brokers’ professional liability coverage. It does not insurance agents and brokers professional liability coverage. Therefore, any claim related to the sale or purchase of insurance is not covered. Further, there is no coverage for loss related to any recommendations or advice regarding insurance, including its procurance or maintenance.

 

Example: Madeline tells her real estate client, Melissa, that she really prefers to purchase actual cash value homeowners policies rather than replacement cost because it’s less expensive. Melissa follows that advice and when she has a loss that settles for far less than what she wanted, she sues Madeline. This exclusion results in Madeline having to respond to the claim on her own.

 

3. Bodily Injury and Property Damage

This policy covers wrongful acts or professional liability. It does not cover bodily injury or property damage. Commercial General Liability Coverage Forms and Policies provide that coverage.

Note: CGL required endorsements CG 22 70-Real Estate Property Managed and CG 22 60-Limitatin of Coverage – Real Estate Operations should be reviewed because of potential coverage gaps.

4. Business Enterprise

a. Professional services that are rendered on behalf of the named insured or any predecessor organization are covered. Coverage does not apply to services that are rendered on behalf of any of the following business enterprises:

·         One that an insured or an insured’s spouse owns or controls

·         One that an insured or an insured’s spouse operates or manages

·         One in which one or more insureds and/or insured’s spouses have more than 10% control or ownership

b. Any claim brought by any of the following business enterprises is excluded:

·         One that an insured or an insured’s spouse owns or controls

·         One that an insured or an insured’s spouse operates or manages

·         One in which one or more insureds and/or insured’s spouses have more than 10% control or ownership

Note: Coverage under this policy is for the named insured’s benefit. This means that there is no coverage for claims presented for businesses that are not the named insured or a predecessor organization.

5. Contractual Liability

There is no coverage when liability for a wrongful act was assumed in a written contract or agreement. However, coverage does apply if the insured would have been liable without such a contract or agreement.

 

Example: The owner of Ace Sales reports a loss to the agent handling his Real Estate Brokers Professional Liability Coverage. A week earlier, on Halloween, a large group of children were visiting homes to collect candy. Several children ran into a sales sign resulting in a number of serious injuries.

The homeowner placed the sign too close to the street. However, that owner had a written agreement with Ace, holding her harmless for any sales activities (since the owner had moved out of state due to job relocation).

Ace’s insurer denied the claim stating that the realtor assumed liability that belonged to the homeowner.

 

6. Criminal, Fraudulent, Malicious, Dishonest or Intentional Acts

Coverage does not apply when a claim is made because an insured committed criminal, malicious, fraudulent, or dishonest acts. It also does not apply when a claim arises from acts, errors or omissions that are intentional. However, this exclusion does reach out and exclude all insureds because of one insured’s excluded actions. Innocent insureds remain covered but only if they meet this form’s definition of innocent insured.

Insureds are considered innocent when they meet all of the following conditions:

Note: Section II–Coverage Extensions B. Protection for Innocent Insureds provides coverage for innocent insureds.

The insurance company is required to defend an insured until it is determined that the excluded acts were actually committed by that insured.

7. Discrimination

There is no coverage for claims related to discrimination. Section II–Coverage Extensions D. Fair Housing Act provides limited protection for civil suits that allege violation of the Civil Rights Act and the Fair Housing Act and other similar housing related acts that are enacted by federal, state or municipal entities.

 

Example: A local newspaper is investigating real estate sales in the metro area. They track potential buyers and notice how the Not Great Real Estate Agency shows clients who are persons of color different houses than are shown their white clients. The aggrieved clients file a class action suit against Not Great. This policy will not provide a defense or respond to damages. However, some protection may be available under Coverage Extensions D. Fair Housing Act.

 

8. Electronic Data

Coverage does not apply to damages that arise out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.

Electronic data is defined as information, facts, or programs used with computer software or any other media used with electronically controlled equipment.

9. Employment-related Practices

All employment-related practices acts, errors, omissions or policies are excluded. Examples include wrongfully terminating or refusing to hire; promotions, demotions, evaluation, reassignments, and discipline; and slander, harassment, humiliation, libel, or slander.

10. ERISA

Coverage does not apply to any actual or alleged violation of the Employee Retirement Income Security Act of 1974 (ERISA) on behalf of any insured party that is considered a fiduciary or trustee of the plan.

Related Article: Trustees And Fiduciaries Liability Insurance

11. Failure to Disclose Compensation

There is no coverage for claims brought against an insured because of failing to disclose the way compensation is received for providing the professional services.

12. Financial Institution Insolvency

There is no coverage when a claim is brought because a financial institution in which the insured set up an account for a client becomes insolvent, unable to pay, bankrupt, liquidated, or is placed in receivership.

 

Example: Jane is moving from California to Ohio. Her employer is buying her house, paying off the mortgage and sending the needed down payment and closing costs to Freedom Bank in Ohio based on Tom’s, her real estate agent, recommendation. The funds are transferred one evening and that next morning FDIC takes over the bank. Jane’s money is trapped and she loses the house she was to close on that day. Jane sues Tom for the sums incurred because of the loss of the house and other expenses incurred as she waits for the money to be released. Tom’s policy will not respond to the suit.

 

13. Fungi or Bacteria

Claims related to any effects of fungi or bacteria within a building are excluded. There is also no coverage for any actions taken concerning fungi or bacteria such as abating, testing, or assessing its existence, regardless of the party that takes or requires such actions.

14. Improper Use of Funds

Real estate agents may collect money from their clients that are to be forwarded to others. This very important responsibility is spelled out in contract language, regulations, and statutory accounting guidelines. Violations of this fiduciary responsibility are not covered under this policy. Specifically, any claim with respect to such funds from any of the following actions is excluded:

Note: Defalcation means gross recklessness with respect to use of money entrusted to a fiduciary.

Claims that involve profit, remuneration, or any type of illegally gained monetary advantage are also excluded.

Coverage does not apply when a claim is brought because funds are not paid, collected, safeguarded, or returned.

However, this exclusion does reach out and exclude all insureds because of one insured’s excluded actions. Innocent insureds remain covered but only if they meet this form’s definition of innocent insured.

Insureds are considered innocent when they meet all of the following conditions:

Note: Section II–Coverage Extensions B. Protection for Innocent Insureds provides coverage for innocent insureds.

The insurance company is required to defend an insured until it is determined that the excluded acts were actually committed by that insured.

15. Insured Versus Insured

There is no coverage for any claim that one insured brings against another insured.

 

Example: Penelope and Janice are brokers at Four States Real Estate. Penelope sues Janice for her actions on a recent deal involving a home Janice’s client was selling and Penelope’s client wished to purchase. There is no coverage under this policy because an insured is suing another insured.

 

16. Invalid or Unobtained License

All states require that agents be licensed to provide professional services. This insurance does not provide any coverage when a license if required for the services but the insured did not obtain the license or the license was not in effect at the time the services were provided.

 

Example: Millie, the executive secretary at Massive Real Estate Agency, is responsible for monitoring all agents and brokers licenses. When the computer is upgraded, she loses the files and it takes two months to restore all files. In the meantime, five different agent’s licenses became invalid because they did not meet state educational requirements. If any of those agents committed a wrongful act during that time period, no coverage would be available under this policy.

 

17. Investment or Tax Advice

There is no coverage for any type of investment or tax advice given or not given that is related in any way to the purchase or sale of real estate, securities or any other type of investment.

18. Notary Claims

Many real estate agents are notaries or employ individuals who are notaries. If a claim arises because such an insured notary authorizes or certifies a signature without actually observing or seeing the signature being placed on the document, there is no coverage.

19. Other Position or Capacity

The only covered wrongful acts are those related to the named insured or its predecessor organization. Claims that result from any insured providing professional services within another organization are excluded. This exclusion applies if the insured is part of the other organization by choice or was directed by the named insured to serve within that organization.

20. Owned Real Estate

This coverage does apply if alleged damage is due to any of the following actions related to property that is owned by an insured.

There is an exception. If the insured owns less than 10% of the property this exclusion does not apply. The less than 10% ownership rule applies only at time during which the professional services are being provided.

 

Example: Margaret is a real estate agent and her client is a friend of the family.

Scenario 1: Margaret’s seller is also a friend of the family. The exclusion does not apply.

Scenario 2: Margaret’s seller is her daughter. The exclusion does not apply.

Scenario 3: Margaret’s seller is MBW, LLC and Margaret owns 25% of MBS, this exclusion could apply.

Scenario 4: Margaret’s seller is Margaret. This exclusion does apply.

 

21. Personal and Advertising Injury

This policy covers wrongful acts or professional liability. It does not cover personal and advertising injury.

Note: Personal and advertising injury may also not be covered under the CGL because the classification rules require that CG 22 70-Real Estate Property Managed and CG 22 60-Limitatin of Coverage – Real Estate Operations be attached. This could result in significant coverage gaps.

22. Pollution

Coverage does not apply to any claim that arises out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants at any time.

Coverage also does not apply to any loss, cost, or expense that arises out of the following:

 

Example: Brenda’s Bakery bought a lot from Halfbaked Properties. She intends to build a second bakery for her expanding business. She sues Halfbaked when a construction crew ruptures an underground tank while beginning excavation. Halfbaked told her the lot was formerly used for a restaurant….not a convenience store/gas station. Part of the damages Brenda seeks is for cleanup and remediation of a fuel spill. This portion of the damages is ineligible for coverage.

 

23. Prior Notice

This policy’s coverage does not apply to any claim for which notice had been given under a prior policy. This applies only if that prior policy provided the same type of coverage that is available under this policy.

24. Prior or Pending Litigation

The declarations has a space for Pending or Prior Litigation Date. When a date is entered in that space there is no coverage for claims related to any litigation that was pending prior to that date. Such claims are all that arise from the same or similar circumstances or allegations. When the word “None” is entered in that space this exclusion does not apply.

25. Property Syndication or Real Estate Investment Trusts

This exclusion works with the investment and tax advice exclusion to prevent coverage for any claims related to real estate as an investment activity. There is no coverage when an insured is involved with forming, advising, managing or participating in property syndication or real estate investment trusts.

26. Related Professional Services

This insurance provides coverage for Real Estate Agents and Brokers Professional Liability. This exclusion removes coverage for any other types of professional exposures. As a result, claims presented because of any of the following activities by an insured are excluded:

27. Violation of Any Securities Laws

There is no coverage for any claim that is the result from an insured violating the Securities Acts of 1933, the Securities Exchange Act of 1934, or any other similar federal, state, or local regulations that relate to securities.

28. Warranty or Guaranty

There is no coverage for claims that result from an insured providing a guaranty or warranty concerning any type of performance or valuation intended to occur in the future.

C. Supplementary Payments

The insurance company pays the following for any claim it investigates or settles. The company also pays them when it incurs them to defend a suit for which it has a duty to defend.

None of these costs reduce the limits available to pay for settlements, claims, and judgments. In addition, none of them are subject to the deductible.

1. All costs the insurance company incurs

 

Example: Property Pals, Inc. is protected by a Real Estate Brokers Professional Liability Policy. The realtor’s owner is accused of falsifying listing information by several former clients. Property Pals pays for ads to repudiate the charge. Property Pals submits bills to the insurance company for full $17,000 it paid for the ads but payment is denied because these are not costs covered under this policy.

 

2. If the insurance company pays a judgment, it also pays the prejudgment interest charged against the insured. However, if the insurance company offers the full limits to settle, it does not pay any prejudgment interest that accrues after it makes the offer.

3. Interest that accrues on the full amount (not just the amount within the available limits) of any judgment after it is entered but before the insurance company pays, offers to pay, or deposits with the court the part of the judgment that is its responsibility.

4. Up to $500 per day in lost earnings when the insured must be away from work because the insurance company requests that he or she appear for depositions, hearings, or for other reasons related to defending a claim. The maximum payment is $10,000 per policy year, regardless of the number of insureds.

5. A suit's court costs that are the insured's responsibility. Attorney fees or expenses that the insured is taxed by the court are not covered.

SECTION II–COVERAGE EXTENSIONS

The coverages that this section provides are within the limits of insurance. They are not in addition to the limits of insurance. This means that any payment made under one of these extensions reduces the amount of insurance available to pay other losses.

A. Spousal Liability

Occasionally a claim will include will name an insured and also the name of his or her spouse. When the spouse is named only because he or she is an insured’s spouse or because of the ownership interest of that spouse in property or assets that are being sought in the claim, this policy will respond.

While the policy does not specifically define the term “spouse” It does state that a spouse can be a statutory, common law or any other type of spouse as determined by the law of the country.

This Coverage Extension applies only when the claim is presented due to the insured’s wrongful acts. It does not cover any claim that arises due to the spouse’s wrongful acts.

B. Protection of Innocent Insureds

Exclusions B. 6. and B. 14. exclude coverage for insureds who engage in certain types of activities. This extension explains that those exclusions do not reach out and exclude all insureds because of one insured’s excluded actions. Innocent insureds remain covered but only if they meet this form’s definition of innocent insured.

Insureds are considered innocent when they meet all of the following conditions:

C. Lock Box

The lock box holding the key to a client’s home is very important to all parties in a real estate transaction. It’s use permits free access to sellers’ homes while keeping them secure. However, because no system is fail-proof this coverage is offered. If a claim is presented that relates to the insured’s use of a lock box, up to $25,000 is available for property damage loss. This coverage applies only for property of clients and not for property owned or under the control of the insured.

Note: This is an unusual coverage. It provides property damage coverage even though property damage is excluded above. It does not provide any coverage for bodily injury that may result for the use of a lock box. However, there are no specific exclusions relating to the use of a lock box and the definition of wrongful act does not specifically mention lock boxes. This means that damages claimed to be due to a wrongful act of the insured related to a lock box may be covered if the wrongful act results from professional services provided by the insured.

 

Example: Elliot is selling his house and Jason asks permission to place a lockbox on his door. Jason agrees but is quite disturbed one day to find the lockbox pried open, his door ajar and the interior of his house vandalized. He sues Jason and this policy will respond by paying up to $25,000 for damaged property.

D. Fair Housing Act

Claims that are brought based on civil lawsuits because of violations of the Civil Rights Act, the Fair Housing Act or any type of rule, statute, or regulation that is similar to it and enacted by any governmental entity are covered.

SECTION III–WHO IS AN INSURED

There are six different types of entities or individuals that are insureds under this policy.

The named insured is an insured. The named insured is the entity or individual listed on the declarations. There can be multiple named insureds.

Any entity listed in the application as a predecessor organization is an insured. The named insured must be the entity’s majority successor of interest with respect to the predecessor organization’s financial assets and liabilities.

The following are insureds if the described relationship is with either the named insured or with the predecessor organization. The insured status applies to only professional services that they perform on behalf of either the named insured or a predecessor organization:

The following are insureds if an insured, as described above, dies, becomes incapacitated, insolvent, or bankrupt. The coverage available to these insured is the same as that which would have been available to that insured whom they represent:

SECTION IV–LIMITS OF INSURANCE

A. The most the insurance company pays are the Limits of Insurance on the declarations, subject to other items in this section. This is regardless of the number of insureds, claims made, suits brought, or number of parties that make claims or bring suits.

B. The Each Claim Limit is the most paid due to all damages that are the result of a single claim. This is subject to the Aggregate Limit.

C. The Aggregate Limit is the most paid for damages because of all wrongful acts that this policy covers.

This section also clarifies how the limits of insurance apply. They apply separately to each consecutive annual period and to any remaining period of less than 12 months. The period begins with the policy period “From” date on the declarations and ends on the policy period “To” date, unless extended after issuance for any additional period of less than 12 months. If the dates are extended the additional period is treated as part of the last preceding period for the purpose of determining the limits of insurance.

 

Example: Sumshyne Realtors was sued and the affair was both time-consuming and expensive. Three and a half years after the suit was originally filed, a court awarded the plaintiffs damages in the amount of $770,000. The policy had an insurance limit of $1 million and court and legal costs equaled $415,000.

Scenario 1: The policy covers defense costs as part of the Supplementary Payments that do not reduce the Limits of Insurance available to pay for damages. Sumshyne's policy handles the entire cost:

Scenario 2: RE 04 08–Amendment Defense Within Limits is attached to the policy so that defense costs are part of the Limits of Insurance. Sumshyne's policy does not handle the entire cost.

Defense costs

$415,000

Defense costs

$415,000

Judgment

$770,000

Judgment

$770,000

Total

$1,185,000

Total

$1,185,000

Amt. Paid by Sumshyne

$10,000 (deductible)

Amt. Paid by Realtor

$185,000 (deductible plus portion that exceeded policy limit)

SECTION V–DEDUCTIBLE

This insurance company does not pay anything until damages exceed the deductible on the declarations. It then pays damages that exceed the deductible up to the limit of insurance on the declarations.

The deductible applies on a per wrongful act basis. All claims directly or indirectly related to the same wrongful act are subject to the same deductible.

The insurance company has the right to pay the full amount of the loss in order to reach a settlement and then require that the named insured pay its deductible. The named insured is expected to immediately reimburse the insurance company the deductible amount when asked to do so.

SECTION VI–CONDITIONS

A. Bankruptcy

Bankruptcy or insolvency of the insured or the insured’s estate does not relieve the insurance company of its obligations that are a part of this policy.

B. Consent to Settle

The insurance company has the right and duty to investigate and settle losses as it deems appropriate. However, under this policy the insurance company stipulates that it will not make a settlement until the named insured agrees to it and does so in writing.

The named insured may refuse to grant permission for a settlement. In that case, the insurance company continues to handle the claim. However, if the ultimate loss is more than the settlement amount the named insured rejected, the named insured must pay all amounts that exceed the settlement amount.

Note: The consent to settle requirement applies only to the named insured. This means that the insurance company is not required to obtain a written consent to settle from any entity who is insured solely because of its relationship with the named insured or processor organization.

C. Duties In The Event of Claim or a Wrongful Act That May Result in a Claim

The named insured (not the insured) has a number of duties to perform when there is a wrongful act or when a claim is presented.

1. The named insured must take the following actions when an insured receives a claim:

2. The named insured must work with the insureds involved with the claim and do the following:

Note: The named insured is not to act independently but instead must wait on the insurance company.

3. No insured may voluntarily make any payments, assume any obligations, or incur any expenses without the insurance company's consent. If it does, it does so at its own cost or expense.

4. When the named insured learns of conduct that could lead to a claim, it must notify the insurance company in writing. The time frame is as soon as practicable. The reporting is required when the named insured has a reasonable expectation that the claim could occur. The notification must provide the following:

 

Example: Sara Lotsells’ realty business has been thriving. She just received some information from a friend on the local realty board that a former client plans on suing her. That client alleges that Sara failed to tell her about a serious zoning restriction on the property Sara sold her. Sara is in the midst of renewing her professional liability policy and she decides not to mention this development until after the policy has been renewed. If a suit is later filed and this information is discovered, Sara could be considered in breach of her duties and coverage therefore denied.

D. Subrogation

Any rights the insured has against others to recover all or part of any payment the insurance company makes transfer to the insurance company. The insured must preserve those rights and not do anything after the loss occurs to impair them. The company can request that the insured bring suit or transfer those rights to it and help it enforce them.

Note: An insured can give away its rights to recovery prior to a loss but it cannot give away any of those rights following a loss. This is a very important tool an insurance company will use in seeking reimbursement following a loss so the insured will be required to prove that any such rights were relinquished and when it did so.

 

Example: Fair Wind’s Real Estate Agency often works with Cloudy Sky Real Estate. They enter into a contract where each waives their rights of recovery against the other. When Fair Wind is sued for actions that were partially caused by Cloudy Sky, its insurance company has no right to sue Cloudy Sky because of the contract that was signed prior to any loss.

E. Other Insurance

The insurance company's obligations to pay are limited if there is other valid and collectible insurance that applies to the loss. If that other insurance uses the same plan, terms, and conditions as this policy, any payment is made proportionally with the other carrier. The share is determined by dividing the amount of insurance under this policy by the limits available from all carriers.

When other insurance available for a wrongful act is not as described above, this policy pays only amounts in excess of that other insurance. This policy is excess even if the other insurance cannot be collected. The most paid under this policy will not exceed the insurance limits on the declarations.

F. Assignment

This policy is for the named insured. Changes or modifications for parties that have an interest in this policy can be made only with the insurance company’s written consent.

G. Legal Action Against Us

No party has the right to bring the insurance company into any suit involving an insured under this policy.

No party can sue the insurance company under this particular policy unless all of its terms and conditions have been satisfied. After an agreed settlement has been reached or a final judgment rendered against an insured, a party may sue the insurance company for recovery. In such a case, the insurance cannot be held liable for damages that are outside of the provided policy coverage or for amounts in excess of the policy’s limit of insurance.

The term “agreed settlement” is one that the insured, the insurance company, and the claimant or its legal representative agree upon and then sign and agree to release liability. .

H. Representations

By accepting this policy as issued, the named insured agrees that the statements on the declarations are complete and accurate and are that they are based on its representations. It further agrees that the policy issued is based on those representations.

Note: This is very important because this condition allows the insurance company to use inaccurate statements in any application to void coverage.

I. Separation of Insureds

Other than the Limits of Insurance and any rights and duties that apply specifically to the named insured, the insurance provided applies to each insured as though it were the only named insured. It also applies separately to each insured against whom claim is made or suit is brought.

Note: This wording is different from that used in the CGL. There is no reference to the “first” named insured but only the named insured. It also specifies that the insurance applies as if an insured is a named insured.

J. Changes in Exposure

1. Acquisition or Creation of Another Organization

If the named insured creates a new organization or if it acquires another organization during the policy year, this policy’s coverage is available but is limited to only those wrongful acts that occur following the date the entity was created or acquired. Furthermore, coverage applies only if the named insured does all of the following:

2. Acquisition of Named Insured

If the named insured is merged into another organization such that the named insured does not survive, coverage continues until the end of the policy period but only for wrongful acts that occurred prior to the merger. The annual premium for the policy is considered fully earned as of the date of the merger and there is no return premium.

The policy requires that the named insured give the insurance company written notice of this acquisition change as soon as practical. The named insured is expected to provide answers to any relevant questions the insurance company has regarding the acquisition.

3. Cessation of Subsidiaries

If an organization that was a subsidiary of the named insured ceases to be a subsidiary, coverage continues for that subsidiary until the end of the policy period but only for wrongful acts that occurred prior to the date of cessation.

K. Cancellation

This condition explains how cancellations are handled. Many states require using a mandatory state form in place of this cancellation condition but this is a good starting place.

The first named insured is the only party that can cancel and it does so on behalf of all named insureds. The only thing it must do in order to cancel a policy is to mail or deliver the policy to the insurance company before the cancellation date.

The insurance company can cancel by mailing or delivering written notice to the first named insured. The notice must be either mailed or delivered at least ten days prior to the cancellation date when the reason for cancellation is non-payment of premium. The named insured must receive at least 60 days’ notice if the cancellation is for any other reason. This notice must clearly state the date of cancellation because it becomes the policy period's end date.

The first named insured receives a return premium when the policy is cancelled. The return premium must be pro rata of the policy premium when the insurance company cancels. However, the return premium may be less than pro rata when the first named insured requests cancellation.

Note: The short-rate penalty is not mandatory but it is possible.

The cancellation is in effect even if the named insured did not receive the return premium.

Proof that notice of cancellation was mailed is sufficient to effect cancellation. Proof that the first named insured actually received the notice is not required.

L. When We Do Not Renew

If the insurance company decides to not renew, it mails or delivers written notice of the non-renewal to the first named insured listed on the declarations at least 30 days before the expiration date. Proof that notice of cancellation was mailed is sufficient to effect cancellation.

Note: State amendatory endorsements may supersede this condition.

M. Changes

The policy that the insurance company issues and the application attached to it represents the agreement it makes with the named insured. If the first named insured requests a change, the insurance company has the right to accept or reject the request. An endorsement that amends, waives, or changes any part of the policy must be attached to the policy.

N. Premiums

The first named insured is the party that pays the premiums and receives all return premiums.

SECTION VII–EXTENDED REPORTING PERIODS

There are two extended reporting periods. One is automatic and the other is optional.

The automatic extended reporting period is called the Basic Extended Reporting Period. The reporting period begins at the end of the policy period and lasts for only 60 days. No additional premium is required. It applies only if:

The optional extended reporting period is called the Additional Extended Reporting Period. The named insured has only 60 days following the end of the policy period in which to purchase this reporting period. If purchased, the reporting period begins at the Basic Extended Reporting Period and lasts for one year. It is available only if:

Additional premium is required and an endorsement must be attached to the policy. The insurance company calculates the additional premium according to its rules and rates but it cannot be more than 200% of the annual premium charged for this policy.

The named insured is responsible for requesting the Additional Extended Reporting Period and it must be requested within 60 days of the policy period end date. The request must be in writing and must be accompanied by the premium and any other amounts of money the named insured may owe the insurance company, such as deductible reimbursements. The premium is fully earned and neither party can cancel the endorsement.

Note: The only coverage differences between these two reporting periods are that the Basic Extended Reporting Period applies automatically and expires at the end of 60 days while the Additional Extended Reporting Period applies only if purchased, begins when the Basic Extended Reporting Period ends and expires one year later. The periods do not overlap because the Additional Extended Reporting Period, if purchased, begins after the Basic Extended Reporting ends.

The following apply to whichever extended reporting period that is in effect:

This extended reporting period does not:

The sole purpose of an extended reporting period is to extend the time during which claims may be made. This means that only claims with the following characteristics can be reported within the extended reporting period:

SECTION VIII–DEFINITIONS

Defined words are used throughout the policy. Restricting their meaning to the definition in the policy gives all parties a clearer understanding of the coverage intended. Twenty-three terms are defined.

A. Advertisement

This is a published or broadcasted notice to the general public or specific market segments concerning the named insured's goods, products, or services in order to attract customers or supporters. Published notices include material placed on the Internet and other electronic forms of communication. Websites are not considered an advertisement. However, notices on websites that provide information about the named insured's goods, products, or services in order to attract customers or supporters are.

B. Application

The application provided is part of this policy. It includes all attachments, addendums, and any other material submitted to the insurance company along with the signed application.

C. Bodily Injury

This is bodily injury, disability, sickness, or disease a person sustains. Death that results from bodily injury, sickness, or disease is considered bodily injury whenever the death occurs.

Mental injury, anguish, or tension; emotional pain or suffering, and shock are all considered bodily injury regardless of how they occur.

D. Claim

A claim is any of the following:

E. Coverage Territory

The United States of America, its territories and possessions, Puerto Rico, and Canada

Coverage territory is also other parts of the world but only if the insured's responsibility to pay damages is determined in a suit based on the merits in the territory described above or in a settlement agreed to by the insurance company.

F. Discrimination

Federal, state, and local rules, regulations, and statutes provide a list of physical characteristics that, if used in making a decision, is considered a violation of that individual’s civil rights. Examples include gender, mental condition, religion, marital status, race, and age.

G. Employee

The term employee is broadened to include leased workers and temporary workers. It does not include independent contractors.

H. Fungi

This is any type or form of fungus as well as scents, spores, and by-products that fungi release. Mold, mildew, and mycotoxims are all considered fungi.

I. Insured

Section III–Who is an Insured identifies the parties that qualify as an insured. All insureds are treated equally and separately except when applying the limits of insurance.

J. Interrelated wrongful act

This is any wrongful act that occurs or results from the same circumstance or allegation and becomes the basis of a suit or a claim.

K. Leased Worker

A person that a labor leasing firm leases to the named insured under a written contract or agreement to perform duties related to conduct of the named insured's business. Temporary workers are not considered leased workers.

L. Named Insured

An individual or entity listed on the declarations. There can be more than one entity and/or individual named on the declarations.

M. Personal and Advertising Injury

Any injury that arises out of one or more of the following offenses:

1. False arrest, detention, or imprisonment

2. Malicious prosecution

3. When an owner, landlord, or lessor of a premises wrongfully evicts, enters, or invades the rights of a person who occupies that premises. The owner, landlord, or lessor may actually commit the wrongful act(s) or someone who acts on behalf of the owner, landlord, or lessor may commit them.

4. Any oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services. This can take place using any form of communication, including the Internet and other electronic forms.

5. Oral or written publication of material that violates a person's right of privacy. The violation can take place using any form of communication, including the Internet and other electronic forms.

6. The named insured using another party’s advertising idea in its advertisement

7. The named insured's advertisement that infringes on another party’s copyright, trade dress, or slogan

N. Policy period

The policy period begins on the inception date on the declarations. It ends on the expiration date on the declarations unless there is an earlier termination or cancellation date.

O. Pollutants

Pollutants include irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.

P. Predecessor organization

Any organization named as such on the application in which the named insured has the majority interest in its assets and liability. It must engage in professional services as this policy defines.

Q Professional services

Services that are performed by an insured are considered professional services if both of the following apply:

R. Property damage

Property damage is physical injury to tangible property and all resulting loss of use of that property. Loss of use of tangible property is property damage even if the property is not physically injured. Loss of use is considered to have occurred at the time of the injury or occurrence that caused it.

Occurrence within this definition means an accident, including repeated exposure to essentially the same harmful conditions.

S. Property syndication

Exclusion 25 states that claims that arise from property syndication are excluded. This term is used only in that exclusion. One or more of the following activities performed in any type of organization whose purpose is to invest in real property are considered property syndication:

T. Real estate investment trusts

These are entities created so that others can invest in real property. It is not limited to only trusts but can include any type of entity. The only requirement is that real property is for the benefit of the entity owners and is being held and managed for those owners. The IRS defines such trusts under its regulations but the use of the term in this policy is not limited to only those matching IRS definition.

U. Subsidiary

Any organization where the named insured or combination of named insureds owns more than 50% of the securities or voting rights.

V. Suit

This is a civil proceeding that alleges damages because of a covered wrongful act. Arbitration proceedings and any other types of alternative dispute resolution proceedings to which the insured submits to with the insurance company's consent are also considered suit.

W. Temporary Worker

Any person furnished to the named insured as a substitute for a permanent employee. The employee the temporary employee substitutes for must be only temporarily away from work. A person being furnished for seasonal or short-term needs is also a temporary worker.

X. Wrongful Act

There are five requirements for a wrongful act: