Question

An insurance producer has one million dollars of protection in his Errors and Omissions coverage, and is sued by 20 homeowners for not placing the correct coverage on their new homes. Each homeowner has sued for 100,000 dollars. How much will the policy pay?

Answer 1

The Errors and Omissions insurance policy would pay out only up to its coverage limit, which is $1 million, even though the total claims add up to $2 million. The insurance producer would be responsible for the remaining amount unless otherwise specified.

Step-by-step explanation:

When an insurance producer is sued for not placing the correct coverage, the payout depends on the terms of their Errors and Omissions (E&O) insurance policy. In this scenario, the producer has $1 million in E&O coverage, but the total claims amount to $2 million (20 homeowners suing for $100,000 each). Assuming the policy doesn’t have any per-claim limits or other limiting endorsements that would reduce the coverage, and the policy limit is the only factor, the insurance would pay out only up to the limit of the coverage, which is $1 million.

The available E&O coverage is insufficient to cover all claims in full, so typically, the insured would be responsible for the remaining amount unless there's a provision within the policy or applicable law to handle such circumstances differently.