E&O: Errors & Omissions

Investment Related

There are a large number of Registered Investment Advisors, Broker/Dealers and other investment professionals that need expert insurance advice and professional liability insurance. Mercator Risk Services is an expert in professional liability insurance for investment related organizations, particularly registered investment advisors, private fund managers, consultants and broker/dealers. Click here to see our Private Equity and Hedge Fund page or here to see our Trustee Liability page.

Exposure

Investment advisors and other investment professionals face claims from a variety of sources, and some are significant. The primary exposure is driven by unhappy investors whose expectations have not been met, which can cause unpleasant disputes and costly litigation. Causes can include adverse performance, deviations from investment plans, and administrative errors. Claims are typically measured by frequency and severity, and for advisors and other investment professionals can be expected to vary significantly between organizations. We often see plaintiffs bringing claims and pushing litigation against parties without responsibility in an effort to access deep pockets. The resulting dispute can cause:

Defense costs, and management time spent focusing litigation, are significant additional costs to any litigation. Defense costs for investment professionals, particularly investment advisors, are a significant part of total loss costs.

Like many professionals, investment professionals are exposed to frivolous claims as well as legitimate claims when errors occurs. Frivolous claims are always structured in the most advantageous manner to the plaintiff, and are not always totally accurate. One method used by plaintiff attorneys is to describe the activity that led to the losses as far riskier and for amounts far greater than agreed to, something that is a challenge to refute.

While investment advisors are the predominant type of investment organization purchasing professional liability insurance, there is a range of investment-related organizations needing professional liability insurance, including:

Professional Liability Insurance

Professional liability insurance, sometimes called errors and omissions or E&O, is available for registered investment advisors and other investment professionals from a number of insurers. Coverage and pricing vary based on the insurer and the investment professional's profile. Key underwriting information for underwriters includes:

Underwriting fund managers is subjective and based on the information provided through an application process. In addition to an application, the underwriter may want to see Form ADV or BD, marketing information, financial reports and client contracts.

Coverage is typically provided on a claims-made basis. Limits and deductibles vary with the size and type of insured. Standard limits for most small to medium sized organizations start at $5.0 million, but limits purchase run from a minimum of $1.0 million to massive limits for the large advisors. Coverage provisions can be customized for special circumstances.

Coverage can be provided with a combination of coverages in addition to professional liability insurance. Typically professional liability policies for investment advisors include directors & officers liability (D&O), although the primary exposure is the professional liability. Additional coverages include cyber liability and employment practices liability coverage. Bonds, including fidelity and ERISA bonds, are also necessary coverages. And general partnership liability coverage and protection outside the U.S. may also be important coverage provisions to some investment professionals.

Mercator Risk Services provides coverage for a wide range of investment professionals including private equity and hedge fund managers. Please let us know your needs and we will provide you with information and assistance with your particular situation or account, and professional liability coverage.

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