Liability Insurance for the Securities Professional

Corporate Counsel

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PUBLISHED ON: September 29, 2003

Liability policies designed for securities professionals typically provide coverage for "any negligent act, error or omission," but limit that coverage to specific types of services to trigger coverage. Some policies specify by listing certain roles, such as a Security Broker/Dealer, an Investment Advisor, or an Administrator. Other policies directly list the covered activities, such as securities trading, investment management services, the giving of financial advice, and the purchase and/or sale of securities. Other policies often fail to define such key terms.

In such instances, the policy terms should be read as broadly as reasonably possible, because the insurance company, not the policyholder drafted the terms and had the only opportunity to define the key terms. Usually, it would be reasonable to refer to definitions included in federal securities laws, especially if the effect of applying such definitions would be to create coverage.

Coverage can be structured with separate policies for separate activities, such as Broker/Dealer and Investment Advisor activities, or with single policies that cover all, or at least several, securities-related activities.