Managing and Insuring Professional Liability Risks
The Independent Consultant
Managing and Insuring Professional Liability Risks
by Mary E. Whisenand
Editor's Note: In our last two issues (October 2006 and January 2007), we ran a series of articles contributed by Mary Whisenand that explained how to understand some of the common features and limits of professional liability insurance policies. Here we conclude that series with some other tips and checklists that can help professionals minimize their liability risk and evaluate their coverage needs and options for their remaining risk.
AREAS OF PRACTICE FROM A LIABILITY INSURANCE PERSPECTIVE
There are three main areas any carrier will consider when underwriting a consulting firm for professional liability (malpractice) insurance. They are the firm's past claim history, their systems and procedures, and their areas of practice. This is why many carriers use an additional supplement for a specific area of practice in their underwriting review.
The amount of consideration given to each category often varies from one carrier to another. Indeed, some carriers will change their focus depending on their overall claim experience. Professional liability insurance rates are determined by an actuarial study of the areas of practice and the claims stemming from those specific areas of practice.
It is important to know that most professional liability insurance products do not restrict coverage to cover ONLY those areas of practice listed on an application. The majority, if not all, of the insurance companies are insuring a consultant for their professional services and the performance (or lack thereof) of those services. Some companies write their policy form to exclude the more hazardous areas. Others may restrict coverage through the use of specific endorsements that are attached through the underwriting process.
Only the consultant can determine how confident they are in a given area of practice to meet the commitment of being their client's advocate. Knowing their limitations is important. Strictly from an underwriting perspective a carrier would prefer to see a consultant concentrating in a few areas of practice where they can thoroughly know the business and procedures as opposed to looking at an application that has a broad range of areas. However, insurance carriers are aware there are business considerations for a consultant, especially the sole practitioner, who may not be in an economic position to turn away business.
There are alternatives available such as associating on a case by case basis with a consultant who specializes in a certain area of practice or using a referral fee system with other firms. It may be in a firm's best interest to develop a network of firms that can share their level of expertise in certain areas. All parties win when clients are served, firms are profitable and insurance carriers are involved in fewer claims.
RISK MANAGEMENT TIPS
As the professional liability insurance market continues to change, professionals are faced with new underwriting restrictions, policy limitations and carrier requirements. Here are some tips to consider when evaluating your firm's risk management practice and procedures. Following these tips does not prevent claims. The information is presented as a tool to educate firms on why malpractice insurance carriers ask certain questions and to help identify practice procedures that help minimize the threat of a legal malpractice action. It is not intended to prevent any legal malpractice action. It should be used only as a guide for implementing procedures that could lead to the avoidance of such actions.
CLIENT / CONFLICTS OF INTEREST
Knowing how to check for and identify conflicts is essential to avoid a legal malpractice claim. Having a good client intake form is an excellent first step. In addition to the basic client and case information, client intake forms should contain the following:
ACCEPTING CLIENTS and/or CASES
Some items to keep in mind when considering an assignment include:
Important items to have in your agreement are:
SUITS FOR FEES
The practice of suing clients for unpaid fees often results in cross-complaints for malpractice. We suggest doing the following before bringing a lawsuit to collect outstanding fees:
Some firms utilize a procedure of using larger retainers, or a series of follow up letters with the periodic billing statements to help recover fees. Others will use a collection agency to pursue the matter before an actual suit is filed against the client. A final step is withdrawing from supporting the client.
QUESTIONS TO ASK AND ANSWER WHEN REVIEWING COVERAGE OPTIONS
No one can anticipate every situation or what specific carriers may ask of their applicants. Each carrier has its own underwriting criteria and decision-making process and you should confirm with your own carrier what they require. The following checklists can be used as a guide on what to provide to a carrier and what to look for when comparing coverages between one or more insurance companies.
Mary E. Whisenand, AR, RPLU, is a client executive with Marsh Affinity Group Services, which administers insurance coverage products that can be purchased through the SOA. For more information on their professional liability insurance offering to SOA members, you can call 800.323.2106 ext. 34479, e-mail , or visit their web site.
This article is for discussion purposes only. Use of any portion of this information will help to establish clear expectations between attorneys and their professional liability insurance carrier. It will not, however, provide absolute protection against a malpractice action. � March 2003 and July 2004 Marsh Affinity Group Services, a Service of Seabury & Smith. All rights reserved. Reproduction in whole or part without written permission is strictly prohibited.