Q: How to Select a Professional Liability Broker?

Not all insurance brokers or agents provide the risk management guidance and services needed to meet the daily needs of Design and Consulting professionals. The broker/ agents of IOA Insurance Services (IOA) have client relationships dating back to the mid-1980. IOA is recognized by most professional liability underwriters as one of the Nation’s leading professional liability agencies.

Take the IOA challenge: IOA represents many of the top-tier underwriters of professional liability insurance including several underwriters that your current agent cannot directly access. Please consider IOA for your alternative quotations at your next renewal. We will provide a complete market survey of competitive underwriters that your current agent cannot directly access.

Q: What is the Industry Standard of Care?

The industry standard of care is the only warranty or guarantee design and consulting professionals can provide his or her client.

The Standard of Care: Services shall be provided in accordance with the usual and customary skill and care used by similar professionals who are performing similar services, on similar projects, at the same time and in the same general location as a project defined by a contract.

Please note: The term usual and customary is viewed as providing average performance. Professional liability polices shall pay on behalf of their policyholder all sums in excess of the deductible, for which the policyholder shall become legally obligated to pay as a result of the failure of the policyholder to meet the applicable standard of care or provide average service.

Q: Who is covered under a professional liability policy?

Professional liability policies generally define an Insured Person as: Any person who was, now is or shall become a duly elected or appointed partner, principal, director, officer, member or employee of the policyholder, but only while acting on behalf of the policyholder.

Please note: All work performed independently of the policyholder (moonlighting) shall be excluded from coverage.

Q: What is considered to be a professional liability claim?

Professional liability polices generally define a claim as: A demand (written or verbal) for money or services received by the policyholder with allegations of damages resulting from the services performed by the policyholder.

Please note: Whenever a demand is received, the insurance company representing the policyholder must be notified. A failure to provide immediate notification may result in a declination of coverage.

Q: What Protection Does Professional Liability Insurance Provide?

Professional liability insurance protects the financial interest of a business and the personal assets of individual professionals from allegations arising from the performance of professional services. Coverage includes the right and duty to defend the policyholder from any claim even if any of the allegations are groundless, false or fraudulent. The duty to defend shall cease upon exhaustion of the applicable limit of liability.

In addition, professional liability coverage includes claims of bodily injury, property damage or economic losses that may arise from professional services. This differs from commercial general liability policies, which limit coverage to bodily injury and property damage claims from non- professional service activities.

Please note: Not all professional liability policies provide identical coverage. Please contact an IOA representative for a no cost coverage comparison.

Q: How should firm respond to a professional liability claim?

Professional liability policies are claims made and reported, which means following receipt of a demand for money or service, the demand must be reported to the insurance company representing the firm.

Please note: A failure to report a demand or negotiating a resolution without the knowledge of your insurance company may result in a declination of coverage.

Q: Are licensed professionals personally responsible for damages resulting from their Services?

The entities named to a claim including licensed individuals are financially responsible for the cost of defending themselves and making payment for the cost damage. The corporate shield does not protect licensed individuals from this financial obligation.

Please note: Professional liability policies include coverage, including the cost of defense, to any person who was, now is or shall become a duly elected or appointed partner, principal, director, officer, member or employee of the policyholder.

Q: What professional service activities are typically covered?

Most professional liability policies define professional services as: Those services a business is legally qualified to perform in their capacity as an architect, engineer, landscape architect, land surveyor, construction manager, interior designer, technical consultant, or as otherwise described by endorsement to the policy.

Please note: Professional liability policies all exclude services that apply to construction means and methods or the responsibility for job-site safety.

Q: What is professional liability insurance for architects/engineers?

PROFESSIONAL LIABILITY INSURANCE also known as Errors & Omissions, (E&O) or Malpractice insurance. This insurance provides coverage to defend and indemnify the design professional against claims alleging negligent acts, errors or omissions in the performance of professional services (wrongful acts). Wrongful Acts are not limited to defects in plans and specifications. Coverage usually extends broadly to encompass most of the professional services rendered by A/E firms. The policy will pay on behalf of the design professional those damages that the design professional is legally obligated to pay as a result of a wrongful act. The policy deductible usually applies to each claim and may or may not apply to the cost of defense. The policy limit of liability typically includes defense costs, meaning that the limit is eroded and can be exhausted by legal fees and other defense costs. Careful consideration should be made when deciding on an adequate limit of liability.

Policies typically exclude express warranties or guarantees; obligations under worker’s compensation laws; claims by employees for employment practices and; the costs to repair/replace faulty workmanship on construction performed by the insured. As with all insurance policies, it is important to read the exclusions to see how they may impact your business.

Asbestos and Pollution liability has been broadly covered, however this coverage can vary greatly from company to company. Exclusions relating to mold exposures are beginning to appear on some new policies or added by endorsement on older policy forms. Coverage is written almost exclusively on a “Claims-Made” form which applies only to wrongful acts which happen, and for which claim is made, while the insurance is in force. Once the policy is canceled or not renewed, all coverage will cease. Few, if any, policies will provide retroactive coverage to the previously uninsured firm. It is therefore advisable to begin a professional liability insurance program as early as practical in one’s practice.

Courtesy of www.aepronet.org

Q: What are the main differences between professional liability (PL) and general liability (GL) insurance?

GL coverage is triggered by bodily injury or property damage.

PL coverage is triggered by bodily injury, property damage or economic (consequential) damages.
GL covers damages arising out of an a/e firm’s day-to-day operations, excluding professional services.

PL covers damages arising from an a/e firm’s professional services.
GL limits are not eroded by defense costs. Defense costs are outside the limits of liability and are unlimited.

PL limits are, typically, eroded by defense costs. In other words, the liability limit covers both defense and indemnity payments.
GL is typically written on an “occurrence basis”.

PL is written on a “claims made basis”.
GL allows Additional Insureds.

PL does not allow Additional Insureds.
GL may be scheduled under an Umbrella Liability Policy.

PL cannot be scheduled under an Umbrella Liability Policy.

Q: What is “claims made” vs. “occurrence” based insurance?

Most liability policies are written on an “occurrence” policy form. Occurrence policies need only to be in effect on the date that an accident causing damage occurs in order to trigger coverage. A claim asserted against the insured may be brought well after the accident. Coverage would revert back to the policy that was in effect at the time of the accident.

Claims of professional liability against design professionals often result many years after an alleged error is committed making it difficult for insurance companies to evaluate their true exposures and determine the premium necessary to cover the risk. Claims-Made policy forms were introduced whereby the trigger for coverage is the date the claim is made against the insured. Today, virtually all professional liability policies for design professionals are provided on Claims-Made forms. In order to establish coverage, three conditions must be met: 1) a policy must be in place at the time a claim is made and; 2) a “retroactive” or “prior acts” date on the policy must be dated at least as far back as the services, giving rise to the claim, were provided; and notice in the appropriate from must be provided to the insurer within the policy term or during a grace period that might be thirty or sixty days after coverage termination.

The advice of your insurance advisor is essential when reviewing Claims-Made policies with respect to mergers, acquisitions, splits and retirement.

Courtesy of www.aepronet.org

Q: Is it possible to get “Full Prior Acts” coverage for a firm that has never been insured?

When an uninsured firm purchases its first professional liability policy, the inception date of the policy becomes the firm’s “Retroactive Date”. Only negligent acts, errors, or omissions that occur on or after this date will be covered under the new policy. Most insurance companies will maintain this Retroactive Date from that day forward as long as professional liability coverage is continuously in force. There is hope, however. There is one insurance carrier that does make it possible to pick up “Full Prior Acts” coverage back to the inception date of the firm, and that carrier is CNA. The program manager for CNA is Victor O. Schinnerer & Co. located at www.schinnerer.com. For Small Firms (under $250K in fees), “Full Prior Acts” is added after only one year in the program. For larger firms, “Full Prior Acts” may be added after two years as a CNA insured. The caveat for this valuable, automatic coverage enhancement is acceptable claims experience during the first year for Small Firms or the first two years for larger firms.

Q: If I need a higher professional liability limit on my practice policy for one project, is that possible?

Yes, generally speaking. For example, if your practice policy limit is $1,000,000 and you sign a contract requiring a $5,000,000 limit, you may purchase a $4,000,000 Specific Additional Limit Endorsement (SALE) for that project in order to meet the requirement. The premium is based on the fees generated on the project compared with the insured firm’s fees overall. Minimum premiums run between $1,500 and $2,500 per million. In other words, using the $4,000,000 SALE example above and $1,500 as the minimum premium per million, the minimum SALE premium would be $6,000 or 4 times $1,500. Most, if not all, insurance carriers will not write SALEs on condominium projects. Lastly, these endorsements cannot be renewed endlessly. There is usually a time limit of around 6 years.