Busy professionals very often have a herd mentality when it comes to buying professional liability insurance. They buy from the same insurance company that everyone else buys from. Same is not always good, however. Professional Liability Insurance is the biggest defender of your professional reputation that there is, but most professionals research a new car more than they do their professional liability insurance.
So what coverage features in a Professional Liability Claims Made Policy form should you look for to know what you are buying? Here are some of the more important ones:
Claims Made and Reported Coverage
The pure Claims Made Policy form is pretty much a thing of the past. Claims Made and Reported has replaced the pure Claims Made coverage trigger. Now, the policyholder must report known claims and even circumstances (anything that reasonably can be expected to result a claim) to the insurance company before the policy renews. Not reporting circumstances timely could make for an uncovered Claim later.
Today’s Professional Liability Policies have Claims Made and Reported coverage triggers. Claims, and now, Circumstances too must be reported to the insurance company during the policy period you first become aware of the Circumstance. If the policy renews, there may be no coverage for a related claim.
Definition of Insured
Always review the Definition Section of a Professional Liability Policy. For instance, the definition for the term “Insured” will tell you if you are covered for work outside of the insured business or “moonlighting” activities.
It used to be if a principal or employee, would perform professional services independently of the business entity (firm) named in the insurance policy without management’s knowledge or consent, the firm’s policy would respond to a claim if one resulted. Now, it is common to restrict coverage to acts performed on behalf of the Named Insured to wall off such extra-curricular, moonlighting exposure. Adopting this wording in the definition of Insured also eliminates prior acts coverage for that defined individual, so prior acts while with a former employer are also not covered even in the absence of a prior acts retroactive date.
Coverage can be restricted to acts solely on behalf of the named business entity excluding moonlighting activities such as for friends and family members and can even exclude individual prior acts. Read the policy’s definition of Insured, Damages, Wrongful Act, and Professional Services carefully to look for any hidden “Acts on behalf of” restrictions.
Claim Expenses Reduce the Limit of Liability
With 60% of final claim costs resulting from the cost of legal fees and other defense costs, it’s important to consider the effect of claim expenses on the amount of coverage or the Limit of Liability being considered. Initially, professional liability insurance was typically written so that defense costs were paid in addition to the limit of liability. That allowed the full amount of the per claim limit of liability to be available to pay a judgment or settlement to resolve the claim. Now, with the ever rising cost to litigate, insurance companies have switched to paying claims expenses within the limit of liability or “CEIL”. Some will offer a specific sub limit for an additional premium to purchase a limited amount of claims expenses in addition to the limit. Usually that requires a special request and underwriting restrictions may apply.
Professional Liability Policies are said to have a shrinking limit of liability meaning Claims Expenses are paid out of the limit of liability thereby reducing the dollar amount left to pay a judgment or settlement. Include a claims expense allowance with any estimate of potential damages that could come from a claim against your practice.
Other Important Policy Features
Here are other coverage features that can vary from one insurance company to another. For help understanding these features call us at 1 (515) 360-9041 or ask us via our contact page. Our services are zero-cost to you and your company, we're happy to receive your questions!
Consent to settle Clause may include a penalty if you withhold your consent
Investment advice exclusion
“Tail” options for retirement
Selection of defense counsel
Loss of earnings for attending trial or depositions
Deductible part of and reduces the limit of liability
Definition of insured includes predecessor firm
Definition of insured includes PLC
Legal services broadly defined to includes title agent, escrow agent, notary, or fiduciary
Professional services tied to licensure in a given state
Excludes investment advisor or accountant
Excludes services for other businesses you own
Any claim by an insured against another
Changes in practice or staff
Extended reporting period
Risk management hotline included
Cyber Liability may only apply to third party claims and regulatory actions
Remember, it doesn’t cost you anything to have an independent insurance broker that specializes in professional liability insurance evaluate your coverage needs and find the best value in an insurance policy for your premium dollars.
One application can be used to access multiple ‘A’ Rated professional liability insurance companies and obtain premium estimates.