Questions to Ask As You Explore Professional Liability Coverages
As you evaluate and compare liability coverages, here are some key things to consider.
COVERAGE PERIOD:
Is it a claims made or occurrence based policy? Virtually all liability policies are either claims made or occurrence based. The difference for coverage involves when the event occurred and when it is reported.
What is the retroactive date? A retroactive date expands the timeframe available for a claim event to be covered.
How are prior acts handled? This is how coverage handles events that would otherwise be covered that happened prior to the current policy term.
Is tail coverage available? How is the price of tail coverage determined? Tail coverage provides the ability to extend the reporting period for claims made coverage after the term of the policy ends. Also called extended reporting period.
WHO IS INSURED:
How is “insured” defined? Who is covered? For example, are only lawyers or accountants covered, or does it also include office staff? What about temporary help? Does it include predecessor firms, of counsel, independent contractors, former partners, etc.?
Insured v. insured exception: This is often an exclusion in D&O and some professional liability policies that exclude claims between “insureds,” such as individual directors or officers or between affiliates or entities that the owners have some form of control. It can also exclude claims by former partners and former directors or officers. This is designed to prevent collusion or conflicts of interests between parties, and can sometimes be negotiated or endorsed to address your unique needs.
POLICY KNOWLEDGE, NOTICE, AND OTHER REQUIREMENTS:
What are the requirements to maintain coverage? For example, does every client need to sign an engagement letter and is there any required content?
How is prior knowledge of potential suits or claims handled?
How do I give notice under the policy? When is notice required?
How does this compare to my existing coverage if there is any? What gaps or issues might I be creating?
SERVICES:
Does the coverage apply to the services that I currently offer or anticipate offering?
Are there any limits to what I can do?
Is pro bono service also covered? For example, lawyers providing legal services, or tax accountants working at a free tax clinic.
PRICE:
How is underwriting/rating handled?
Price can be impacted by length of time in business, number of employees, type of business, location, claims history and so on.
LIMITS AND DEDUCTIBLES:
What are the policy limits available?
What should my policy limit be?
Are there categories of coverage in the policy that have sublimits? Sublimits are just lower policy limits that apply to specific types of losses. For example, if you have $5MM of coverage, but a sublimit of $500k on a certain type of loss, your policy will at most pay $500k on those losses.
What is the amount of the deductible or retention?
LITIGATION:
Can I select my own defense counsel?
Is my consent required for settlement?
What is my role in litigation?