Is the coverage trigger similar to a general liability policy?
Most general liability policies are triggered when the claim or incident occurs. Most professional liability policies are triggered when the claim is made against the insured. Frequently, professional liability policies require that the claim must be made against the insured during the policy period and reported to the insurance company within a specified period of time.
Also, the alleged incident must have occurred after any retroactive date that may be stated in the policy. If the insured does not comply with the reporting requirements or if the alleged incident occurred prior to the retroactive date, the policy may not respond.
With the strict requirements of a claims made policy, does it create any issues when trying to change insurers?
When an insured is contemplating moving professional liability coverage to a new insurer, continuity is extremely important. There are usually three areas to carefully consider with respect to continuity.
First, does the new carrier require a retroactive date? If so, does the retroactive date match the date from the old insurance carrier? Second, is there a pending or prior litigation exclusion date? If so, does it match the pending and prior litigation date from the old carrier? Lastly, what type of application is the new insurer requesting? Will they accept what is known as a ‘renewal’ application or will they require a ‘main form’ application?
In the main form, there are usually some warranty provisions, which require the insured to acknowledge in writing any issue that could result in a future claim. If at the time of loss, the insurance company can show that the insured breached the warranty and was aware of such issue that caused the claim, the insurer could deny coverage.
If the new insurer will not grant continuity, the insured may invoke an extended reporting provision in the policy. This allows the insured to purchase an extended reporting period (ERP) or ‘tail’ in order to report claims during the ERP. For example, one firm is acquiring another firm and the insurer for the acquiring firm will only cover acts which occur subsequent to the acquisition. Therefore, the firm being acquired may purchase tail coverage for a one-time premium that will allow the acquired firm to submit claims to its insurer during the ‘tail’ or ‘run-off’ period, usually three to six years.
With all the nuances in professional liability coverage, how do I know if my firm is obtaining the coverage to meet our needs?
The best way to make certain the professional liability coverage for your firm provides the protection it should is to work with an insurance agent or broker who specializes in the type of coverage. Your agent or broker can work with your firm and obtain quotes from different insurers and analyze the programs offered. He or she can assist in structuring the professional liability program to best meet your firm’s needs.
Edward X. McNamara is a senior vice president and the regional sales director of the East Central Region for Aon Corporation. Reach him at (216) 623-4146 or [email protected].