Understanding Your Claims - Made Professional Liability Insurance Policy
The Independent Consultant
Understanding Your Claims-Made Professional Liability Insurance Policy
by Paul Dorroh and Mary E. Whisenand
Editor's Note: This article is part 2 on common features and limits of professional liability policies (part 1 appeared in October), and part of a larger series on the topic of PL coverage in general. If you have ideas for questions you'd like to see addressed, and/or other sources of information, please feel free to contact me.
Considerations for the Individual Consultant
For those consultants in solo practice, the discussion included in October's article should prove generally accurate without further elaboration. Today, however, many consultants practice in firms of two or more, and there is increasing mobility between firms and practice settings. These consultants need to be aware of some special issues affecting their coverage for professional liability claims.
In all professional liability policies, the named insured is the firm. In the case of a sole practitioner, of course, the firm and the consultant are identical. With two or more consultants, however, the case is different. It is the firm which holds the rights and duties of the named insured under the policy, with respect to such matters as payment of premium, giving and receiving notices and exercising various options which may be available. Thus, while individual consultants may be protected under the policy, many of them know little about it because the matter is handled by others at the firm. Thus, consultants often have little idea who, if anyone, is providing their professional liability coverage, either currently or for prior acts, nor do they understand the scope of protection being afforded to them personally.
Regardless of the practice setting and any contemplated changes, take the time to know what professional liability coverage exists to protect you and your firm against claims. The following checklist may assist in better understanding these issues and avoiding unintended gaps or deficiencies in coverage:
When purchasing or renewing a policy for yourself or your firm, it is important to provide the carrier with all the relevant information to help them give you the best pricing possible. Keep in mind:
Special considerations exist for professionals who are retiring from practice, or entirely ceasing private practice due to health considerations, to pursue another occupation or for other reasons. Although no longer actively practicing, such professionals do need continuing insurance protection for claims that may be asserted after retirement based on occurrences while still in private practice.
For professionals retiring or withdrawing from a firm that continues to carry professional liability insurance for the ongoing practice, coverage is usually afforded automatically under the policy of the firm, so long as it continues to be renewed. Even if the firm switches carriers, the retired professional is usually covered so long as the new carrier is providing prior acts coverage. The retired professional shares in the coverage afforded the firm with respect to limits of liability and deductibles.
Such an arrangement is often satisfactory where the continuing firm is stable and well established, and can clearly afford to continue carrying coverage. The retiring professional should, however, consider the following factors:
Practice Management and Claim Prevention
The experience of the insurance industry with the modern claims-made policy for professional liability insurance since the 1970s has been positively affected by the efforts of numerous professional groups to educate their members in claim prevention and risk management. Although there is no way to measure the number of claims that were not made as a result of such efforts, there is ample statistical support for these basic conclusions:
Claim prevention requires an organized, structured effort to adapt procedures and patterns of practice to the perceived likelihood of claims that could result from the particular area under discussion. The following is a brief summary of major areas of interest and attention in a risk management program.
When professionals fail to keep up with current developments in their areas of practice or accept engagements which require expertise or levels of commitment of time, personnel and administrative support beyond the capabilities of their offices, claims are more likely to occur.
Every business and professional practice must manage time and deadlines. Poor time management practices also lead to stress and disorganization within the office, which enhance the risk of claims of all types. The essential objectives of a good time control system include (1) centralization, to make sure that all key dates and events are entered, (2) redundancy, to make sure there is a "fail-safe" backup to alert responsible professionals even in the absence of regular personnel, (3) cross-checking on a regular, frequent basis, to be sure that all calendars reflect the same dates and events, and (4) follow-up, to be sure that all dates, and events are actually communicated to the responsible professional(s) as intended.
Widespread availability of inexpensive personal computers and software for time management makes it more feasible, and thus more important, for the office to develop and maintain time control systems.
Effective procedures to identify and avoid conflicts and other ethical problems can prevent claims. Many professional groups provide their members with a toll free "ethics hotline" from which members can obtain references to authoritative sources dealing with particular ethical issues.
In many ways a sound office management system is the underpinning for claim prevention. Claims are more likely to arise where the practice fails to deal effectively with such seemingly mundane matters as handling of mail and telephones, filing and record keeping. Sound administrative management systems and procedures are also key to effectively dealing with other critical risk management issues such as time management and avoidance of conflicts.
Numerous claims arise because the firm does not properly manage its receipts and disbursements, or adequately account for them. Fee disputes with clients are a particularly fertile source of claims, and one of the best ways to avoid such claims is to avoid having large outstanding receivables. Doing so requires effective time keeping and billing procedures, as well as regular and prompt attention to overdue items by a responsible person within the firm.
Professional education and development
Proper selection, training, supervision and continuing education of both professional and non-professional personnel can help to avoid claims. The professional's emphasis should not be merely on meeting the minimum requirements, but on developing and maintaining knowledge and skills that will support high quality services for clients.
Professionals with personal difficulties such as stress, financial, family or substance abuse problems, are more likely to engage in behavior that leads to claims, whether by neglect of professional matters or errors in judgment resulting from preoccupation with personal issues.
Marsh Affinity Group Services 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.
Paul Dorroh, J.D. and Mary E. Whisenand, AR, RPLU, are with Marsh Affinity Group Services.