New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on August 3, 2001, representing the position of the New York State Insurance Department.

RE: Errors and Omissions ("E & O") Coverage for Insurers

Question Presented:

Is there any New York Insurance Law or regulation specifying the types of insurance coverages, such as an E & O policy, that must be purchased by an insurer to insure its own risks?

Conclusion:

No. However, it is standard, prudent management practice to insure against such risks as negligent claim handling, or theft of company monies by employees.

Facts:

A company that represented itself as a "New York State licensed Group Accident and Health insurer" stated that its broker advised it that "NYS Group Health & Accident insurers must have Errors and Omissions coverage to insure against claims for negligent claim handling." The company has had such coverage in the past but is now considering self-insuring the exposure.

Analysis:

E & O coverage and similar types of protection, such as fidelity insurance, are not mandated for insurers by the Insurance Law or Department regulations. However, it is standard, prudent management practice for insurers to carry such coverage for their own protection to limit the potential financial losses from liability or misappropriation caused by officers, directors, or employees. Additionally, in the course of conducting examinations of the financial condition of insurers, Department examiners review whether an insurer is appropriately managing its risks, appropriate insurance is in force covering the hazards to which company is exposed, and all officers and employees are appropriately bonded, whose duties and responsibilities require the carrying of such coverage.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.