$1M Professional Liability (E&O) Insurance for Equipment Appraisers

Equipment appraisers usually meet a $1M Professional Liability requirement with a $1M per claim policy, but check whether your lender or lessor also wants a $2M aggregate.

What does a $1M requirement mean for equipment appraisers?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your work caused a client a financial loss. For an equipment appraiser, that usually means someone says a value was wrong or an asset was missed. A typical lender clause looks like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M. A $1M/$1M policy would not meet this clause. A $1M/$2M policy would.
• 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 the policy covers). See claims-made vs. occurrence.
• Years after the report: the sample clause asks you to keep coverage for three years after each report, because a bad collateral value may show up only when a loan fails.

Who asks equipment appraisers for $1M?

For equipment appraisers, $1M is a limit some clients ask for, and some ask for more. You may see it from:

• Banks and asset-based lenders that order liquidation value appraisals on loan collateral. Orderly liquidation value is what equipment might fetch in a planned sale. Forced liquidation value is what it might fetch in a rushed sale.
• Leasing companies checking what equipment will be worth when a lease ends (residual value).
• Law firms and trustees handling bankruptcy or divorce disputes.
• Buyers, sellers and accountants on small business sales.
• Insurance agents and businesses ordering insurable value appraisals.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), with nothing stacked above it. Many equipment appraisers buy a Miscellaneous Professional Liability form, which is made for service businesses that do not have their own policy type. A commercial umbrella almost never covers Professional Liability, so it will not fill a gap.

Many Professional Liability policies pay defense costs inside the limit, so legal bills can shrink what is left to pay a claim. See defense costs inside or outside the limit. Clients usually cannot be added as an additional insured (a person who gets coverage under your policy), so lenders often accept a certificate of insurance (proof of coverage) instead. Larger loans and leasing deals may call for $2M. See $2M Professional Liability for equipment appraisers.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage. For equipment appraisers, they usually ask about:

• Your revenue split by purpose, such as lending, leasing, insurance, tax, litigation and bankruptcy.
• The equipment you value, such as construction, medical or restaurant equipment.
• How often you inspect in person versus working from client lists and photos.
• Whether you also run auctions, liquidations or equipment sales.
• Who signs reports, their credentials, and whether you follow USPAP (the Uniform Standards of Professional Appraisal Practice).
• Engagement letters, your largest assignments, prior claims, and your current policy.

What affects the cost?

• Type of work. Collateral and bankruptcy work may cost more than insurable value or tax work, because the possible losses can be larger.
• Revenue, assignment size and claims history. Larger loans mean larger possible losses, and past claims can raise the price.
• Aggregate, retention and defense terms. $1M/$2M usually costs more than $1M/$1M. A higher retention (what you pay on each claim before the policy pays) usually lowers the premium (the price of the policy). Defense outside the limit often adds cost.

Frequently asked questions

Do I need $1M Professional Liability as an equipment appraiser?

Often yes, if a lender, lessor or other client who relies on your reports requires it. Your contract sets the number, and it may also set the aggregate.

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

No. A $1M/$1M policy does not meet a $1M/$2M clause. Morrow can request quotes for a $1M/$2M policy and ask that they keep your retroactive date, so earlier work stays covered (often called prior acts coverage), where the market allows. Keep your current policy in force until the new one starts, and report anything that could become a claim to your current carrier first.

What claims could an equipment appraiser face?

Usually claims that a value was wrong or an asset was missed. Hypothetical examples: a lender sells foreclosed excavators for far less than your liquidation value and blames your report, or a business is underinsured after a fire and says your insurable value was too low. In each case, a policy may pay to defend a covered claim, even if the allegation turns out to be unfounded. Coverage depends on the policy wording.

What if I retire or stop doing appraisals?

A claim first made after a claims-made policy ends is generally not covered. An extended reporting period (a "tail") gives you extra time to report claims about past reports. It usually must be bought soon after the policy ends.

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.