American Association of Daily Money Managers » Anne Assured -- Claim ScenarioConsider the following claims scenario which is based on the combined real-life experiences of practicing daily money managers:
Anne had just renewed her policy before being served with the lawsuit. In reviewing the claim, the carrier's counsel noted that the first five requirements for coverage were obviously met by the tendered matter. He paused, however, on the final requirement that the alleged error or omission take place on or after the policy's Retroactive Date. Consistent with industry-wide practice, when Anne purchased her first MML policy the Retroactive Date was set to match her policy inception date. That meant that she actually petitioned the trustee to reinstate the policy before the assigned Retroactive Date. This could give rise to a coverage problem given the particulars of this claim. Fortunately, however, upon the annual renewal of her policy Anne had taken advantage of the carrier's Prior Acts Extension program. This program is quite unique given that carriers virtually never agree to grant a retroactive date earlier than the date from which the insured has continuously carried uninterrupted claims made coverage. The reasoning behind the industry-wide reluctance of underwriters to insure prior coverage gaps is the perceived moral hazard of allowing insureds to delay purchasing coverage for years until such time as the need for insurance becomes pressing and apparent. Insurers would thus become subject to adverse selection which can significantly skew the actuarial projections underwriters rely upon to maintain financially sound and sustainable insurance programs. In addition, underwriters generally consider professionals who neglect to secure appropriate insurance coverages as lacking in judgment and an appropriate sense of professional responsibility, making such practitioners less desirable as potential insureds. Notwithstanding the foregoing, the Lloyd's underwriters supporting the AADMM MML insurance program have recognized that E&O insurance for daily money managers has not been readily available in the market place. Thus, a DMM's failure to secure such coverage is likely not to have resulted from any kind of moral hazard or lack of professional responsibility on the part of the DMM, but simply from a dearth of suitable coverage options. Hence, underwriters agreed to offer those applying for coverage under the AADMM program a one-time option upon the renewal of their first MML policy to extend the retroactive date of coverage back to when the insured first started in practice. For Anne, the decision to pay the one-time fee to extend her retroactive date constituted the difference between there being coverage for the claim against her or not. Having met all the criteria for coverage, Anne was defended and indemnified against liability at the carrier's expense and the matter was settled in due course. Anne's Axioms In reflecting on the experience, Anne developed several guidelines which she posted prominently on her office wall:
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