Additional Insured's - Professional Liabliity Part 2

WAIT......WHAT?

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!

OVERTIME
Curtis Samuel scores the winning touchdown in the second overtime for Ohio State. (Greg Bartram/USA Today Sports)

Overtime can be a major problem for you if you're a sports fan rooting for the team on the short end of the game score. That's one type of overtime. Overtime can also be a major problem for you or your client if they're facing a "claim" for back pay from a disgruntled employee. Or "better" yet, suit papers from a not so friendly law firm.

Before I could add the second part to the additional insured post from a couple weeks ago, some interesting things happened in the world of Employment Practices Liability (EPL). That triggered this post, as the rule itself is not as important as the overall subject matter.

New overtime rules for "while collar" workers, part of the Fair Labor Standards Act (FLSA), were to take effect as of December 1, 2016. The new OT rules, if or when they go into effect, change the "exempt" employee qualifying amount of compensation (one of several "tests" to determine eligibility) from $23,660 per year to $47,476, which is basically double. That means business owners that are not paying attention will immediately be out of compliance for any "exempt" employee making less than $47,476. 

As respects this rule, a Texas judge has issued a preliminary injunction. That injunction stems from a legal case brought by several states and business organizations. The injunction is not permanent, so the "freeze" on implementation by the Department of Labor may or may not be for long. Opinions differ as to whether the new rules will ever be implemented, and as you can imagine the reasons are mostly political in nature. But either way I'm guessing you're wondering what this has to do with you.

The problem. Odds are that some of your customers are in trouble and just don't know it, either due to their business practices related to non-exempt employees, or the fact that they don't have EPL including wage and hour coverage, or both.

Several years ago plaintiff attorneys discovered that the employment practices of many businesses are ripe for legal action. This occurs in at least two areas related to wage and hour, 1) mis-classification of exempt employees and 2) poor or no record keeping regarding overtime hours for non-exempt employees. Some business operations do a fair to poor job of properly identifying who is and who is not an "hourly" employee, and that mistake compounds over time.

One common misconception is that classifying employees is up to the employer. It's not as there are Federal guidelines and "tests" to be applied that don't leave much room for subjectivity. Even if the employer gets the classification correct, those employers that don't keep accurate records of hours worked open themselves up to suits alleging that back pay is owed for OT - almost always from former employees. The onus of responsibility in these situations is on the employer to prove they have accurate records of both hours worked and the payment for those hours.

What to do? First, your customers need to know the rules that exist now relative to exempt and non-exempt employees and how to properly apply those rules in their business operations. If they don't know for certain they need to ask for help to be sure they're following the rules that are established. That may or may not require a consultant, but given the cost of a consultant vs fines, penalties and legal costs, it seems like a pretty easy choice. Second, review their current EPL policy to see if that policy provides defense for wage and hour law violations (part of FLSA). If the policy does provide wage and hour language, read it. Most policies are defense only, i.e. no indemnity coverage, and most only offer a sub-limit, usually $100K.

If they don't have EPL coverage in place, quote and bind coverage for them asap and make sure you explain what is and is not provided by that policy.

I'm fairly certain that if you do a little reading and get current on this issue, you'll be a huge resource to your customer and separate yourself from many of your competitors on this subject. If you have questions or want to discuss the topic, let us know and we'll be happy to help.

Choices and Options and Bears. Oh My.

 

It seems that many of the fun things I do these days have something to do with my grandson. Earlier this year when the weather was warmer we made a trip to the Cleveland Zoo. Cleveland has a great zoo in my humble and totally unscientific opinion.  And there are MANY choices and options as to where you can spend your time and energy. We navigated through the day reasonably well, but I have to admit once we saw the lions and tigers and bears, we spent the rest of the day making it up as we went. We had fun and it was a successful trip, but it could have been much more efficient and a little less stressful if we were a bit better informed.

In our current insurance marketplace, being informed and having a plan is critically important given all of the options we face every day. What can make it more challenging are the various positions insurance carriers take on a variety of issues. I’ll use a fairly common subject as an example; adding entities as additional insured to an Errors and Omissions (E&O) policy. (this could also apply to D&O and/or EPL)

When writing a GL policy you know that just about everyone hiring sub-contractors requires that the sub name the hiring entity as an additional insured (AI). In addition it's not uncommon to see requests for waiver of subrogation and primary non contributory wording to be added as well. And then there's the job or entity specific AI wording, usually requesting everybody and their brother/sister to be included in the AI wording.

In the world of E&O insurance, it's not that easy. In the past few years, more carriers have been willing to consider including entities as additional insured on an E&O risk, but there are still many carriers and classes where it's limited or not an option. Why would a carrier balk at doing this, and just as important to you, how can you advise your client on this subject? I'll list some reasons for you to consider, and in the next post I'll explain why this is an issue, as well as some discussion points you should consider with your customer.

1.  There may be an "insured vs insured" exclusion on your client's policy

2.  The incident in question may not trigger the policy coverage provisions. Professional liability and/or E&O policies are triggered by an error or omission in providing or failing to provide professional services.

3.  The insurance carrier in question has a reinsurance agreement and the reinsurer will not allow or accept AI's on the policy.

4.  Your customer may suffer a reduction in policy limits in more than one scenario

5.  You  may be open to an E&O claim by adding an AI

If you have a situation that's pressing and can't wait until the next post, by all means call or email and I’ll be happy to help. Call 800-442-8063 xt 171 or email at thoelle@tuscano.com