Thursday, July 15, 2010

Lawyers Professional Part III (Coverage)

This image is "back in the day" worthy. Some of my 2o something acquaintences think back in the day was 2007. Know the band?
Photo courtesy of Elektra/Asylum records

Many years ago agents and carriers used to refer to some of the coverage forms in use as "All Risk" or "Named Perils". The "All Risk" form really didn't cover ALL risks. Many of you are too young to remember all of that "back in the day" stuff, but it's likely that you may still fall into the trap of thinking coverage exists when it really doesn't. Just because you provide a client with a purpose written form that says "Attorneys" or "Architects" on it doesn't mean it's going to cover all of their likely losses. And if you don't read anything else on this subject, know that on these forms you may have to read the exclusions to find coverage, or you may find exclusions in the definitions. Over the next few posts I'll touch on as many coverage areas as possible. Email me if I don't land on the one you want reviewed.

First, most of the lawyer's policies in place today are claims made. There are a few carriers that promote a "package" concept where they include E&O with the GL, and some are written occurrence. I won't take the time here to explain in detail why those forms are probably a bad idea but call me and we'll go through it. The short version is limits are shared or sometimes the professional liability is offered as a sub-limit, coverage isn't as comprehensive as it should be and you really need to pay close attention when you move coverage from a claims made form to an occurrence or vice versa. (If someone has a great "package" E&O for lawyers I'd love to see the wording...)

If you're not up to speed on the terminology and concepts with claims made coverage the best thing to do is review a policy form, use the internet to look up terms, call your favorite E&O broker (I'd recommend TuscanoPro of course), or some combination of all three. If you're not sure how a claims made policy works I'd really encourage you to get that down before you do alot of selling. Once you get the basic concepts it gets down to comparing forms - and we can and will help you with that as well.


Most forms use "pay on behalf of" wording so if someone's making a big deal out of that as a policy feature don't get excited. Every once in awhile you'll see wording that says the carrier will "reimburse" the insured. You really want to avoid reimbursement wording. While a carrier or broker may tell you the carrier will never ask the insured to pay a claim and be reimbursed by the carrier, if it's in the wording I'd be concerned. If they'll endorse the policy wording or replace it with a better form or a different carrier, do that.

Most policies also say the carrier has the right and duty to defend, and that extends even if the claim or suit against your client is false, fraudulent or groundless. These days that's standard wording also, but good to point out if your client has never had coverage previously. Yes, established attorneys and other professionals practice their craft without malpractice insurance, so keep that in mind - you're not just selling a first time policy to those that are new in business.

Last point in this post. You need to understand the workings of the "consent to settle" clause. The consent to settle wording can be called many things, but usually will include the words settle or settlement and consent in some combination. It's called a "Hammer Clause" by most underwriters. The idea is this; the carrier says they won't settle a claim without the insured's consent, but the wording also adds that if the insured doesn't give consent the carrier's liability is limited to what they could have settled for - the amount offered to settle at the time the insured withheld consent. The "hammer" is agree to the settlement the company offers or take the chance you (the insured) will be on the hook for a portion of it later. If your client doesn't give their consent they're gambling that the claim won't exceed the settlement amount.

Some carriers have amended the consent to settle wording to "soften" the hammer. In those policies instead of having 100% of the additional liability (the amount that exceeds the insurance company's agreed upon settlement amount) the insured is responsible for 75% or 50% of the additional settlement costs. Typically it's either wording that's been amended by the carrier or it's not, you probably aren't going to get the carrier to amend their wording on this section if they haven't already done so, but you may be able to negotiate this on larger accounts. Just be aware of the fact that this section isn't one size fits all, there are differences in some carrier's forms. (Whether you know the band pictured or not, don't rely on what you recall was covered from a policy you looked at "back in the day". Wordings really do change...)

Finally, most attorneys (insureds in general) don't think they're going to have a claim, so just because another carrier has a modified or broader consent to settle wording doesn't mean you can't write the account. Like any other class, there are other considerations including your relationship, pricing and other coverages. More of the latter in the next post...

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