$1M Professional Liability (E&O) Insurance for Collection Agencies

For collection agencies whose contract asks for $1M, Professional Liability (E&O) can respond to claims over errors in your collection work, up to $1M per claim, depending on the policy wording.

What does a $1M Professional Liability requirement mean for collection agencies?

Professional Liability (E&O, short for Errors and Omissions) covers claims alleging a wrongful act, error or omission in your professional services. For collection agencies, that can include collection practices claims, depending on the wording. A typical clause in a placement agreement (the contract under which a creditor sends you accounts) reads:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the yearly cap on all claims. Here, $2M.
• Collection practices: clients often want coverage for consumer claims about calls, letters or credit reporting.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest work date it covers). That is why the clause asks for coverage after the contract ends. See claims-made vs occurrence.

Collection coverage is often written by specialty markets on a full application. Morrow can help you find it. When Morrow reviews your contract and policy, these points are worth checking: a sublimit (a smaller cap inside the limit) for consumer law claims, a retroactive date that leaves older accounts uncovered, and an exclusion (something the policy does not cover) for liability you take on only by contract, such as a promise to cover the client's losses (an indemnity).

Who asks collection agencies for $1M?

Some collection agencies are asked for $1M, though contracts differ. Common sources of that request:

• Hospitals and medical practices placing patient balances.
• Banks, credit unions and auto lenders.
• Utilities, telecom providers and property managers.
• National creditors, which may ask for more.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), with no excess layers (extra policies stacked above it). Collection agencies usually buy a specialty Professional Liability form or program that expressly covers collection activities. A standard Miscellaneous Professional Liability form (a general form for service businesses) may exclude debt collection unless the wording specifically covers it.

If your creditor asks for more than $1M, the next step is often $2M, through a higher primary limit or primary plus follow form excess (excess that follows the primary policy's terms). See $2M Professional Liability for collection agencies. Morrow can help you find it.

A commercial umbrella almost never covers Professional Liability, so it usually cannot help you meet the limit.

Clients usually cannot be added as an additional insured (a party listed on your policy) on Professional Liability. A certificate of insurance (a one-page summary of your coverage) proves coverage but does not add anyone to the policy.

What will underwriters ask for?

An underwriter is the insurer's decision maker on coverage and terms. For collection agencies, they usually ask about:

• Debt types: consumer or commercial.
• Whether you collect on contingency (you are paid a share of what you collect) or buy debt.
• How you reach people (calls, letters, texts, dialers), and whether you report to credit bureaus or sue.
• Compliance controls: call recording, scripts, training, dispute handling and state licenses.
• Revenue, accounts placed each year, prior claims, lawsuits, regulatory inquiries, complaints and your retroactive date.

What affects the cost?

• Consumer vs commercial mix. Consumer collections may involve more consumer law claims, which underwriters may weigh.
• Complaint and claims history. Prior suits or regulatory actions can raise price or limit options.
• Collection methods. Heavy use of automated calls, texts, credit reporting or suits adds risk.
• Aggregate, retention and defense terms. A higher aggregate usually costs more. A higher retention (the amount you pay on each claim before the policy pays, similar to a deductible) usually lowers the premium. Defense outside the limit often adds cost (see cost factors).

Frequently asked questions

Do I need $1M Professional Liability as a collection agency?

You need it only if your creditor contract requires it, and some placement agreements do. Read the insurance clause to see the exact limits.

What does Professional Liability cover for a collection agency?

It can cover claims alleging a wrongful act, error or omission in your collection work, depending on the wording. Hypothetical examples: calls a consumer calls harassing, or a letter with the wrong balance on a debt the consumer says was paid. Claims over automated calls and texts under the Telephone Consumer Protection Act (TCPA) are often excluded or limited, so check the wording.

Does Professional Liability cover missing client funds or a data breach for a collection agency?

Usually not. Theft of collected funds by an employee is usually covered by a separate crime policy, and data breach costs by a separate cyber policy.

Is $1M/$1M enough if my contract says $1M/$2M?

No, a $1M/$1M policy does not meet a $1M/$2M clause. Send Morrow the contract and your policy. Morrow can request quotes for a $1M/$2M policy and ask carriers to keep your retroactive date and prior acts coverage (coverage for earlier work) where the market allows. Keep your current policy in force until the new one starts, and report known incidents to your current carrier first.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.