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

EPLI: Wage and Hour

In a prior blog post I mentioned a few items that could be helpful for you to consider when placing employment practices liability insurance. Here's the next entry, this one on the topic of wage and hour defense coverage. You should be reviewing this for every client you work with...

Wage and Hour violations has been one of the hot buttons for many plaintiff law firms over the past few years. The concept usually goes something like this; attorneys advertise seeking individuals who were employed and feel like they may not have been paid adequately (translation - someone who is disgruntled because they were fired, passed over for a promotion, etc). The most valuable "target" for a law firm is a group of employees that were paid on an hourly basis and that worked a considerable amount of overtime over a long period. Frequently the employer does not keep detailed records of hours worked, or if they do keep those records, they discard them too soon, they can't locate them, they're damaged in some way, etc.

If the plaintiff firm feels moved to bring an action against the employer, they assert that the employee(s) were not paid a sufficient wage for the time worked. Damages could include back pay, plus interest, plus fines, and penalties. The burden is on the employer, not the employee, to prove the pay provided to the employee was accurate. This can be extremely stressful to a business owner, as it will consume considerable time and energy to produce the necessary records - if they exist at all - to prove their position. The stress is compounded if they have an EPL policy that doesn't include defense coverage for this situation or they have some coverage but not the maximum they could have purchased. If the latter case arises (not every policy provides the coverage) the agent of record can count on some stress of their own, and likely a claim against their own E&O policy.

Even if the employer has all of the records to confirm how they paid the employee(s), they may still be liable if they don't have their staff properly classified. Many employers believe that just because a person is called a "manager" or has “additional” responsibilities, that makes it OK to pay that person on a salaried vs hourly basis. This is not correct and could end up costing the employer (your client) in a big way. (Here's another plug for using the risk management tools available on many EPL policies, or at the very least making sure the employer has their staff properly classified and keeps detailed records of hours worked).

Ok, so you're convinced that this is a valuable additional coverage - how does it work?

1. The "Coverage" under most policies is added by endorsement. If a policy has a very recent revision date, it could be included in the wording. When in doubt, ask the underwriter.

2. The "Coverage" is usually defense only - and if so, it will not pay on behalf of the insured for damages, including back pay, fines and penalties.

3. The "Coverage" is most commonly provided as a sub-limit, not the full policy limit. An example would be a policy limit of $1 MILL may only provide $100,000 of wage and hour defense coverage. Whether it's a part of the limit of liability, or in addition to the limit differs by carrier.

4. Defense applies to wage and hour laws that could be local, state or federal, and could apply to foreign laws, depending on the carrier. If you have a client that has operations outside the US, you need to check that provision carefully.

One of the most common areas of law that is involved is the Fair Labor Standards Act. If you are not familiar with this at all, a good place to start is the website for the US Department of Labor; Wage and Hour Division http://www.dol.gov/whd/flsa/

This is by no means the only resource to use, so google the terms and make some phone calls before you speak with your client.

There's much more to this issue, but I hope this gives you a basic awareness and gets you thinking about existing clients or prospects you may be working with now, and how to approach them about this very important issue.

EPLI

Hopefully the proprietor of this fine establishment in Greensburg, PA has an agent who has educated their client on possible coverage options, in addition to doing whatever quality control work they feel compelled to do...

I've not spent much time writing about Employment Practices Liability, as it really belongs in the "management liability" category, but as I see more and more submissions I think it's time to offer some thoughts. As you probably know, many, many standard carriers provide this coverage, so most agents have access to markets. However, there are some other considerations and here are just two things to be aware of; (1) tougher risks, like restaurants, real estate and law firms for example, don't have as many market options available and (2) even though this is a highly competitive class, coverage options are still all over the place.

Here are some policy benefits or coverage options you should be aware of...

Risk Management: I know, I know, most insured's could care less. Hopefully as an agent you're at least talking with your client about the benefits of using the services many carriers provide at no cost to your customer. Those services vary with the carrier but can include:

• online access to forms and procedures
• worksheets/checklists your client can use to see where they stand in comparison to other business operations
• some sort of telephone or internet based help line or similar service
• online or in office training for managers and/or employees

While I understand it's not going to be all that interesting to many insured's, those with claim history or larger or more sophisticated clients should be willing to factor these features into the mix.

ID Fraud Expense: This is definitely not an option that is universal, but some of the carriers are now including a small limit for ID Fraud Expense Reimbursement per employee as a value added item. Usually the "coverage" is for the cost of clearing up credit, not coverage for any lawsuits, and includes some help in navigating through the process. Limits are in the $1000 to $2500 range per employee, but the insured may have the option to purchase a higher limit.

Information Security: This may also be referred to as Network Security, Data Breach or Cyber Liability. There may well be other terms used by other carriers. The coverage could be for the full policy limits, or could be provided as a sub-limit. If this coverage is added by endorsement or included in the policy wording, make sure you understand how it applies. In general, data breach is for loss that arises out of unauthorized access to private data. If it's added to an EPL policy, you should expect it to apply to employment information for past, present or future (applicants) employees.

That's a critical point, because if that's how coverage applies (employees or applicants for employment) it will not substitute for data breach/information security coverage your client may need if they acquire and maintain private data for customers. Don't make the mistake of assuming that "data breach" is "data breach", i.e. it's all the same coverage, and make sure your client is aware of what is intended and what is not.

More to follow...

Winning - Adding and Amending Coverage

The anniversary of the 1980 USA v Russia Olympic Hockey win is February 25th. This photo is from the post game celebration when the USA defeated Russia to advance to the gold medal game. Russia's team was expected to win, and the USA victory was punctuated by Al Michael's television call "Do You Believe In Miracles?!"

There's no doubt that it's a still a tough market, and "winning" is not easy, but it's still a great time to write E&O and Professional liability insurance.

Rates are still very competitive, and while it's possible that rates will increase at some point, right now there are numerous markets that are still aggressively seeking business.

Keep in mind it's not just rates that will help you write new business and retain renewals. Carriers are still revising their policy forms, usually to broaden coverage. If a carrier has not recently revised their wording, there's a good chance that they have one or more endorsements that will amend/improve coverage in certain key areas.

The most recent example I can offer is a submission for an engineering firm. This particular client was aware of a situation one of his competitor's experienced, where there was a need for defense for an issue that was brought by a regulatory authority. That engineer had to hire an attorney and the process cost the engineering firm nearly six figures.

Several of our carriers offered this coverage at varying sub-limits, but our best pricing originally didn't include the coverage. We were able to negotiate that coverage into the policy at a sub-limit of $25,000 per incident, $50,000 per policy period, and the deductible does not apply. The policy and the negotiated coverage helped our client win the account.

I'll give some other examples of coverage options in future posts, but if you have questions about what might be available for your client please call or email. We'll do all we can to help you win on your next opportunity.

Architects and Engineers: Unique Coverage

The photo at the right is of Independent Presbyterian Church in Savannah, Georgia. An example of a type of neo classical structure, it was re-built after the previous structure burned in 1889.

In an architects and engineers policy wording, there are a number of coverage sections and elements that are a little different than other professions. If you're aware of the coverages provided and additional options available you may be able to land an account because your competition isn't familiar with coverage, or perhaps isn't able to offer these extensions. It's certainly worth a look.

Not every policy will include all of the following, and some policies may be able to be endorsed to include one or more of these coverages. In no particular order of importance:

1. ADA, FFA and OSHA supplementary payments. These coverages reference the Americans with Disabilities Act, the Federal Fair Housing Act and the Occupational Safety and Health Act. If an architect or engineer renders services and the result of their design or engineering work violates one or more provisions of the act(s), the insurance company will reimburse the insured's legal fees. This is only for legal fees, not fines or penalties, and it applies when an administrative or regulatory action is brought against the insured. Limits are usually in the $25,000 to $50,000 range, and typically these limits are in addition to the policy limits and the deductible doesn't apply.
2. Pollution coverage. It may be included, but check the wording as there's no true standard for this. Some policies are "silent" so there's no specific exclusion and no specific coverage wording either. Some will define the coverage they will provide and it will be very specific, and still others will include the coverage but at a lower sub-limit, possibly $250,000.
3. Innocent Insured coverage. Instead of having the coverage "added" this is a situation where one of the usual policy exclusions does not apply. That exclusion is for dishonest, fraudulent and criminal acts, and will not apply to Insureds who are not involved in the excluded activity, provided they report such acts to the carrier as soon as they are aware of such activity.
4. Optional Extended Reporting Period (ERP). Every policy should have such a provision to allow the insured to add time to report claims should they decide not to buy coverage going forward. The length of time varies from one to five years, and a few carriers offer unlimited ERP. The longer the term of ERP the more premium your client will pay. This coverage extension is frequently not considered when purchasing a policy, but perhaps should be in the event the principal(s) are considering retirement at some point in the near future. Some policies will include a free ERP option if the insured retires provided they have been insured by the same carrier for a specified period of time, usually not less than three years. Others may also include a limited time of free ERP if the insured is disabled or dies during the policy period. If you're inclined to talk with other clients about life or disability insurance you should be talking with an A&E firm about the same issues.
5. "Attendance at Proceedings" supplementary payments - this isn't solely found in A&E policies but its worth noting. This coverage will provide additional limits for costs the insured may have to incur as a result of appearing at a hearing or trial or similar event at the request of the insurance company. Amounts per day are $250 and up, and the aggregate during the policy is usually $5,000 to $10,000 but can be higher. Check the policy, but usually these limits are in addition to the policy limits and no deductible applies.
6. Mediation credit. If a claim is resolved by mediation the policy deductible is reduced by a set percentage, usually 50%, and is usually subject to a maximum reduction, most commonly $25,000.

If you're not sure which additional coverage might be available, check the policy or make sure you ask your broker or underwriter.

Lawyers Professional Part IV (Coverage cont'd)

Signs help us find our way if we'll pay attention to them. Since not every town is laid out the same, it really helps if know what you're looking for and at least a general idea of where to find it. (This one is in Worthington, OH at a great little shop)

Lawyer's policies are similar to cities and towns, at least in my world, as neither of them are uniform. You really need to read the form (the map) and then if it's still not clear get some "directions" from someone. I wish there was a GPS for E&O policies, but until that happens, here are a few more coverage or wording elements to look for/understand:

Who Is An Insured? The word "Insured" in a lawyer's malpractice policy will/should include the following"...

Named Insured: That should be the entity (or person) named in the declarations. It's just as important that you get the name of the insured correct on this class of business as with any other, and the reasons are the same. Look for coverage to include terms like "firm" and "predecessor firm". In short, the predecessor firm is one that is inactive/no longer providing professional services and either 50% or more of the principals, owners, etc have joined the current insured's firm (your client's firm) or 50% or more of the assets of the predecessor firm are now a part of the named insured's firm.


Insured Persons: A current or previous employee of the Named Insured. This is where you find coverage for partners and principals, and for other staff. If it's "other staff" the wording could further define it as an employee that supports (or supported) an employed lawyer, and this commonly includes clerical and other employees that are not attorneys.

Other terms you will see include independent contractor and "of counsel", as they are also insured under the policy. An attorney who is "of counsel" to another firm in a practical sense is one who has specific expertise or experience that is brought in by a law firm to assist that firm in handling a case. According to Black's Law Dictionary http://www.blackslawdictionary.com/ , of counsel is one who is employed by a law firm to assist in the preparation or management of a case, or in its presentation on appeal, AND not a member, partner or officer of the firm employing them.

Insured also usually includes managers, directors, shareholders and the like.

All of the above are normally covered "while in the scope of their duties on behalf of the named insured or predecessor firm" or something similar.


Professional Services: It's usually under this heading, but you need to check the full policy for other services that are covered. The most common - in addition to legal or lawyer services - are as follows:

• Arbitrator or Mediator
• Notary Public
• Lobbyist (some policies will include this and some won't)
• Law clerk, paralegal, legal secretary/support staff
• Administrator, conservator, executor, guardian, etc but these services only if they are services typically performed by an attorney
• Author, speaker
• Title agent

Let's take a look at that last one. Be careful if you have an attorney or law firm also operating a Title Agency; title agent coverage included in the policy is not the same as title agency coverage. Many lawyer's malpractice carriers will include the title agency on the E&O policy, but most of them will only do so if the title agency is wholly owned by the law firm. The insurance policy will need to be amended by endorsement to include the title agency by name and there will probably be a flat additional premium charged, average is around $500.

While I'm hard at work advocating caution, please look very closely at the wording on the law firm policy vs wording for a stand along title agency policy. Even if coverages were exactly the same (they're not) remember that you're providing one policy so the limit will be shared. As always make sure your customer also knows that.

More to follow...

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.

INSURING AGREEMENT

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...