There are a couple of things to consider when determining the appropriate coverage limits on your E&O policy: 1) they type of work you do and how well you sleep at night, and 2) what your clients (or underwriters) require. 

If you do all residential work and the value of the property rarely exceeds $500K, that might be an appropriate limit for you.  On the other hand, if you do residential property in an area where property values often exceed that amount, or commercial work that usually entails more valuable property and more complicated searches, you may want more coverage.

Sometimes, clients or underwriters will require a minimum amount of coverage.  In such a case, they should let you know.

You also have to consider the aggregate amount of coverage. The aggregate limit is the most they will pay during the policy terms, sort of an annual cap.  Thus, if you have $500,000 per occurrence/aggregate, and you have two claims for $400K each, you will be left with no coverage for most of the second claim. 

Another factor is defense costs.  Defense costs are normally "inside" the policy limits.  This means that if you have a claim for $450K and they spend $75K defending the claim and you lose, you will have $25K out of pocket.  As an option, you can sometimes get coverage for defense costs "outside" the policy limits, which means that the cost of defense is not counted against your limits and you would still have $500K available to pay any claim after your defense costs.

I carry $1M per occurrence/aggregate and my defense costs are "inside" the limits.  Since we have never had a claim (knock on wood), I feel pretty comfortable with that.  Even with a large claim, I feel pretty secure.  I think $1 million would be enough to cover the claim and defense costs.  Most likely, we would have coverage still available if, heaven forbid, we had two claims. 

I have thought about reducing our coverage to $500K, but I am of the philosophy that it is better to have too much insurance than too little.  And, if I were ever to choose to reduce our coverage, I would definitely want a higher aggregate limit and defense costs "outside" the policy limits.

These are things you should discuss with your agent and get their opinion before deciding on your coverage limits.

Best,
Robert A. Franco
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