Know the risks of adding banks to your E&O Insurance Plan

By James Candler, President of HSA Insurance Services

Do you want to share your E&O insurance coverage with a bank or even the government?  Most real estate professionals would agree that this does not sound like a good idea.

While we’ve seen a rebound in the housing market, the market still has a good share of foreclosures and bank owned properties. Over the last few years we’ve seen an increase in requests from our policyholders to add banks and management companies as additional insureds on their errors and omissions policies.  You need to be aware of the risks that this creates for you.

The intent of this request from your clients is to have your errors and omissions policy extend coverage to them if they are sued as a result of a negligent act, error or omission that resulted from your professional services.  This may seem like a good reason, but it creates potential risks that you should be aware of.

  • Adding a client to your policy as an additional insured could allow them to report claims directly to your insurance carrier.
  • Your policy is designed to cover your professional services.  Adding another insured could potentially provide coverage to the additional insured’s other professional activities.
  • Your policy limits of liability would be shared with your additional insured in the event you both were involved in the same claim.

In all three of these situations, you as the policyholder would lose control of the claim, and you would be sharing your limit of liability with your client in the event a claim that triggers the policy.

In addition, a policy typically contains an exclusion from one insured suing another insured.  In a situation where an additional insured is added, the insurance carrier would not be obligated to provide coverage.  All errors and omissions policies are designed to compensate parties other than insureds and are not intended to cover disputes between co-insureds.

When we receive requests to add additional insureds, we will work with the insurance carrier to attempt to come up with a solution that is agreeable to all parties involved  In most cases, based on the carrier and their underwriting guidelines, we may not be able to honor this request.  In those cases, we can provide a certification of coverage to your client that has requested they be named as an additional insured and this has been accepted by the client.

In summary, adding an additional insured is not in your best interest or in some cases not in the best interest of the client requesting to be added as an additional insured.

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