What are some coverage pitfalls to avoid in insuring these exposures?
It’s critical to coordinate coverage provided under a commercial general liability policy with that provided in a separate professional liability or errors and omissions policy. Any professional services exclusion in a firm’s commercial general liability policy eliminates any coverage for claims involving bodily injury or property damage liability claims arising out of their professional services.
At the same time, some professional liability policies only cover pure economic loss and exclude bodily injury liability claims, resulting in a significant gap in coverage The solution is to buy broad professional liability coverage that includes bodily injury and property damage liability-type claims, as well as pure economic loss. Although insurers sometimes will not provide this full protection, they will provide contingent bodily injury and contingent property damage coverage, which cover claims due to physical injury or damage to the property of a client if not covered in the client’s general liability policy.
Another typical exclusion involves claims due to contractual guarantees or other express warranties of price, cost or performance, or a return of fees. Unfortunately, these claims are not insurable in a professional liability policy. A solution is to amend the policy so the coverage is still provided for claims arising out of contractual guarantees or warranties if the underlying cause is due to the insured’s negligent acts or omissions.
Many professional liability policies are written on a claims-made basis, meaning that the insurance only covers claims that are filed or made during the current policy year and the related error or wrongful act occurred on or after the starting date of the policy — a so-called prior acts inception date. In this case, the insurance buyer wants to negotiate a prior acts date for its professional liability policy as early as possible. Each year coverage is renewed, the insured should be certain that the same prior acts inception date is maintained.
What coverage extras should be included?
The policy should include:
- The option for the insured to choose its own defense lawyers subject to approval from the insurer.
- The broad definition of a covered claim that includes regulatory investigations or administrative actions by a government agency; coverage of legal fees incurred to defend against a demand for an injunction or other nonmonetary relief; coverage for a claim alleging a dishonest or a criminal act until found by a court upon final adjudication; and coverage of punitive damages to the extent allowable by state law.
- An absolute right to buy a ‘tail’ or ‘extended reporting period endorsement’ of one to three years in the event that the policy should not be renewed by either party. This extends the policy after it has expired to cover a claim arising from a wrongful act or error during the prior coverage period.
- A very broad listing of covered professional services under the policy.
Philip Glick is senior vice president with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1310, or [email protected].
