Tuesday, January 24, 2017

Additional Insured's - Professional Liabliity Part 2

In my prior related post (published Nov 10, 2016) I discussed the concept of an Additional Insured (AI) and the professional liability policy. For years carriers writing E&O coverage have either not been willing to add AI's, or have done so with limitations. The market has evolved as it always does and competitive pressure along with a few other factors have caused many carriers to loosen up those guidelines. Getting an AI added to a professional liability policy is indeed easier on many classes than it used to be, but don't take that to mean AI status is always going to be available. And even if the carrier agrees to do so, you still have some things to consider, which I'll outline. First understand that companies that write E&O and Professional Liability don't all treat this situation the same, and they fall into four main categories (according to me) regarding AI requests:
  1. They can't because it's a "treaty" exclusion, i.e. whoever is providing their reinsurance has said this is not an option. That one doesn't come up very often in our current marketplace.
  2. They won't because they argue there's little or no coverage for most AI's on an E&O policy. I'll explain that in a minute.
  3. They will add an additional insured, but they'll charge for it, frequently more than the customary $100 or so, and typically will not give much leeway when it comes to language regarding other entities, i.e. affiliates, ATIMA, etc. They may or may not offer waiver of subrogation and/or primary non contributory wording. Usually they won't offer a blanket AI option either.
  4. They'll offer AI wording, and will accommodate those requests with the same or close to the same level as a GL carrier. Due to market pressures and the need to do something more than the competitor, this option is becomeing available more and more.
To make your life a little easier when you run into these situations, here's some information that may help you work things out with the underwriter, or at least be able to properly explain the circumstances to your customer.

Insured vs Insured exclusion. The theory is if you add an AI to a policy you now make them an insured, and if the policy has an insured vs insured exclusion, they will be prevented from bringing action against "themselves". Jurisdiction, prior legal precedent, how big the claim is and who has the best attorney all factor into this pot of goo. Just understand that it's a consideration and you need to know if it applies on the policy you're working with.

How about the claims trigger, you ask. GL policy claims are typically triggered by third party damage, such as BI and PD. Tangible stuff for the most part. Professional liability claims are triggered by an act, error or omission in providing or failing to provide professional services. If you add an AI that offers no professional services to a policy intended to provide coverage for an entity that does provide professional services, does the action of the AI trigger policy coverage? And what about adding an AI that would be covered by a different type of E&O policy - does that prevent the policy from responding? It's not an issue if all you're after is defense coverage for the AI in the event the insured commits E&O, but make sure the endorsement wording doesn't create new problems.

Reducing policy limits, maybe.  Make sure your client understands that the greater number of entities "sharing" the policy limits means that in the event of a covered claim with an AI, or more than one, everyone is pulling from the same stack of cash. Everyone has to eat, so I do understand that sub-contractors and smaller entities may take on contracts without regard to the requirements just to get the work, but at the very least they should be made aware of the possible downside.

YOUR E&O could be at risk. Brokers do a great job of getting things accomplished for their customers, whether there is enough time to reasonably expect anyone to do so and whether or not the client has any idea how much work may be involved. But be careful. In the prior paragraph I gave an example of where this can come back and bite you in the, uh, assets. If you don't explain to your client that their limits can be eroded or eliminated by adding one or more AI's, you can bet their new BFF attorney will spell it out for them. Same with other possible problems that occur in these situations.

When you're adding an AI make sure you review the policy to see if you're creating a new problem. Ask the underwriter and if they're not sure ask the underwriting manager. Just make sure you can explain it to your customer. Remember you're supposed to be working on THEIR E&O, not YOURS!

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