Pitfalls of Professional LiabilityPresented by:David R. Carothers, CIC, CRM & Lance Crawford, GBA

Disclaimer

We are not transactional insurance agents. We are risk management consultants who work with companies of all shapes and sizes. We have the ability to place insurance, but our goal is to educate our clients to make sound business decisions and transfer as much risk as possible which enables them to either get better pricing on their insurance product or transfer risk contractually and remove the need for insurance. We are more like accountants or attorneys as we are trusted advisors as opposed to someone trying to sell you something. There is no hook on this call. It is 100% educational.

Pitfall Is Not Just a Game for the Atari!

There are a ton of considerations when it comes to

professional liability. I wish I could tell you that it is a one size fits all product, but it isn't. Professional liability is a fickle mistress that will tempt you with price and leave you at the altar at the time of a claim.

What am I Covering?

Many people are confused at the difference between General Liability and Professional Liability. The easiest way to decipher between the two comes in the form of coverage triggers. Coverage triggers are those events that will force and insurance policy to respond.

General Liability covers those events which give rise to Bodily Injury and/or Property Damage.

Professional Liability covers those events which give rise to a financial loss.

The Proverbial Gray Area

As with anything else, there are professional liability policies that are required to cover bodily injury and property damage.

ex. Physicians’ Medical Malpractice Insurance

There are some professional liability policies that cover property damage

ex. Landscape Design endorsement on the general liability policy

There are some professional policies that need to cover both bodily injury and financial loss

ex. Food Testing Laboratories.

AREA

Considerations

How is the policy written? – Claims Made– Claims Made and Reported– Occurrence

Each respond in a completely different manor at the time of a claim. It is important to know this up front, it eliminates passive risk in your company.

Hammer Time?

Meet the Real Hammer

What is the "hammer clause" in the policy?

It is often called a consent to settle clause as well. Basically what this does is protect the insurance company. In the event you have a claim and there is an offer to settle, for say 25k and you choose to continue to fight the claim because you want to preserve your reputation. After litigation, the claim pays out at 100k rather than the initial 25. You are on the hook for the additional 75k Not good. You want a liberal consent to settle clause written in your policy. Carriers do offer a variety of options, you just have to know to ask.

If you currently carry a professional liability policy, you have a hammer clause in your policy. Do you know your obligations should there be litigation?

Are you a Riverboat Gambler?

Then why does your insurance program make you look like one?

What type of deductible do you have?

Is it per occurrence or per claim?

Is their a definition of a claim that will lump all claims on a specific incident together?

Did you even know you had a deductible? Do you know how much risk you are retaining?

Bill Gates Can Get Professional Coverage

What type of financial qualifications do you need to have to get coverage?

Professional liabilty pricing is directly related to the financial health of your organization.

The better your financials, the better the pricing.

Pass the Buck

What does your customer agreement look like?

What you do in your client agreement in terms of hold harmless, breach, warranty and remedy can be the difference between you getting into a admitted market or excess and surplus lines.

Communicate Before Compliance

What do your contracts require you to carry?

Do the requirements match up to the exposure of your job?

I have a client that was going to do some food testing for the city of New York. The contract was 36 pages long and the insurance requirements were ludicrous. I asked him how much he was going to make on the job and he replied it's the city of New York. I told him that he would want to flag his marketing budget for the 20k increase in premium if he did the job because that was all he was doing...marketing. It wasn't worth the cost just to say he had the city of New York as a client.

Most contracts are negotiable if you know how to talk to your customer. I run into the situation all the time where a client has a signed contract and then is forced to comply. Share the contract with your advisers on the front end. It will allow you to negotiate and will save you a lot of money in the long run.

Stop the Bleeding!

What are the payment terms?

Can you break the premium up into payments or do you have to run through a premium finance

company?

If you have to go through premium financing it isn't a big deal but you want to be sure there aren't added interest points or an increased interest rate.

Can You Say Bailout?

What is the financial strength of the company?

Are they going to be around again next year, or are they going to be the next government bailout?

What are you Really Doing?

Most importantly, the description of professional services declared on your policy has to be 100% accurate.

Anything that you do outside of the description of operations is not covered.

No Pinnochios

Be honest on your application.

The application is made a material part of the policy upon issuance and can come back to haunt you if you stretched the truth.

Maybe Your Dad Can Beat Up My Dad

Be conservative on your projections.

If you know you are going to do 1.5 mm in sales this year, use that number. If there is an outside chance you could do 2mm in sales, stay with the 1.5mm.

The company will audit you at the end of the year and you can pay the difference in premium owed at that time.

Don't let them have your money for a year, you need it to grow your business.

This is not the time to attempt to be a show off.

Package is Not Professional

Stay away from products that throw in some limited professional coverage on a business owners policy. It is a recipe for disaster.

How Does This Apply to Me?

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Contact Us

• David R. Carothers, CIC, CRM – drc@praxiom-rm.com

• Lance B. Crawford, GBA - lcrawford@praxiom-rm.com

Or

888-350-7729