How well do you understand your professional liability insurance policy? What questions should you ask? Let's examine some questions and characteristics of coverage that can lead to disputes with your insurer.
"Claims Made" or "Claims Made and Reported"? Is coverage under your policy triggered when you first receive a claim or when you not only receive the claim but also report it to your carrier? Exactly how is a "claim" defined because this too can vary? Does the claim need to be reported in writing?
Does the claim have to be service of a lawsuit or receipt of a demand letter? Or is it sufficient to report that you just became aware of information that someone is likely to seek holding you accountable for a project problem that has arisen?
Will your professional liability policy provide you with a defense and indemnity when a claim is made against you based on your contractual obligation to "indemnify and hold harmless" your client from any claim against the client that may arise out of the project? Or only those claims that arise out of your services for that project?
If you design a product that will be reproduced many times and it results in many claims or lawsuits will your policy cover defense and indemnity for all those claims or lawsuits?
If your professional service is different from the traditional planning, design, and construction observation, will your policy cover claims arising out of that service? What if you are a sales engineer and your service is limited to assisting a customer in selecting the right model or customizing a product feature to meet specific needs? If a claim arises out of that kind of service will it be covered?
How does the policy define the professional service that it is insuring? If you are an HVAC engineer and you design a structural support system for the HVAC unit that later fails, will that claim be excluded because you were not insured for structural engineering services?
If you are an architect who takes on a renovation project that becomes entangled in asbestos related litigation, will you be protected? Or does your policy have an asbestos exclusion?
How about policy limits? Does your policy have a per-claim limit and a different aggregate limit? How is that applied when multiple claims arise out of the same act, error or omission?
Does the policy limit apply only to the payment of loss (settlement or award)? Or does the cost of defense reduce the limit available to pay awards or settlements?
Does your policy give you the right to refuse to settle? Does the policy have a consent to settle clause? Many professional liability policies acknowledge that a professional seeks to protection not only from costs of defense and awards or settlements but also their professional reputation. Those policies give the Insured the right to refuse to settle and the right to participate in the decision of whether and under what conditions to settle.
Insurance policies are intended to protect the insured from a variety of losses. The purchase decision is often made on cost and key differentiating features can be overlooked. The policy is often filed away. Only when specific claims are addressed do these kinds of issues come to light.
Risk management can be a complex undertaking. Seek out a broker experienced in the specific risks that your profession faces.
Are there more professional liability insurance related issues you would like to see discussed? We are interested in your comments.
This article expresses ideas for consideration and should not be taken as recommendations applicable to any specific situation. When making a decision on how to address a specific situation consulting with an experienced attorney is recommended.
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