Q: I am trying to figure out whether our independent contractors (ICs) are already covered under our agency's errors and omissions (E&O) insurance policy. I cannot understand the policy's clauses on this issue, and my insurance agent's guidance is not really clear. When I ask industry colleagues, I get different answers each time. Regardless of whether the ICs are covered, I am also trying to decide whether I should insist that our ICs obtain their own errors and omissions policies. Can you help me with these questions?
A: Let's take what appear to be the two most popular E&O policies among travel agents, the one issued by the Zurich American Insurance Co. and administered by Aon, which was formerly known as Berkely, and the one issued by the Stonewall Insurance Co. and administered by Berkshire Hathaway Travel Protection.
Oddly enough, the two policies' descriptions of coverage for ICs are virtually identical: "Each of the following is an insured under this policy to the extent set forth below ... D. Independent contractors who are individuals acting alone, whether or not incorporated, working under contract with the named insured to sell the named insured's travel services, but only when selling the named insured's travel services or conducting the named insured's travel agency operations."
So, assuming that you have one of these policies, let's consider the issue of whether your ICs are really covered. The quoted clause is obviously not a model of clarity.
First, to be covered, an IC must be "acting alone." This requirement appears to mean that if an IC has a partner, an employee or an IC of its own, then the IC is not covered by your policy.
Second, although it does not matter whether the IC is "incorporated," it isn't totally clear whether this applies to ICs that have their own limited liability company (LLC). However, since an LLC would presumably fall under the "or not incorporated" alternative, I would assume that an LLC qualifies.
Third, the IC must be "under contract." If, as is so often the case, the arrangement between your agency and its ICs is informal, it isn't clear whether the informal arrangement qualifies as a "contract," but my advice would be to make sure that you do have a written one signed by both parties.
Fourth, the contract must be "to sell the named insured's travel services." If the IC has his or her own clients, uses only a trade name and picks suppliers without any help from the host, it certainly appears that such an IC is not really selling the "named insured's travel services," but is instead selling his or her own services.
On the other hand, if the IC uses only your agency's name in sales to clients that you refer to the IC, it is probable that the IC is indeed "selling the named insured's travel services."
The difficulty is finding the dividing line. For example, if the IC does everything on his or her own but puts "an independent affiliate of ABC Travel" on a business card or email signature, is the IC selling your travel services? The answer is unclear, and I don't know whether there is any way to clarify the issue.
Fifth, the final phrase of "or conducting the named insured's travel agency operations" is perhaps doubly unclear. Does an IC ever "conduct" your "operations?" Probably not.
This leads to your second question: should the ICs have their own E&O policies? Given the ambiguities noted above, it follows that, if you want to be sure of E&O coverage for your ICs, they and you will be better off if they have them.