BASICS OF BUYING & SELLING PROFESSIONAL LIABILITY A DISCUSSION OF ITEMS NEEDED TO PROTECT YOUR CLIENTS AND YOURSELF

SCENARIO # 1 A Real Estate Agent who regularly sends you Homeowner referrals asks you to look at his Real Estate E&O policy….the premium goes up every year and he wants a better price

Scenario # 2 60 days prior to your agency’s E&O renewal, you are inundated, flooded and overwhelmed by free offers to provide an E&O renewal quote to you

Some Fundamental Facts There is no “Standard” Professional Liability Policy, whether it is Admitted or Non-Admitted Each individual policy must be read and understood in order to make an informed decision as to which policy meets the needs of the client. This may include policies from the same carrier. The Edition # is important. There are profound differences in claims handling between E&O carriers

Elements Common to Professional Liability Policies 1. Claims made form 2. Retroactive Date 3. Wrongful Act 4. Definition of Named Insured 5. Definition of Professional Services 6. Exclusions

Claims-made policy A policy providing coverage that is triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act that gave rise to the claim took place. (The one exception is when a retroactive date is applicable to a claims-made policy.) claims-made policy - Insurance Glossary | IRMI.com

Retroactive Date A provision found in many claims-made policies that eliminates coverage for claims produced by wrongful acts that took place prior to a specific date, even if the claim is first made during the policy period. Example: A January 1, 2010 retroactive date in a policy with a January 1, 2014-2015 policy term would bar coverage for claims resulting from wrongful acts that took place prior to 1 January, 2010, even if claims (resulting from such acts) are made against the insured during the January 1, 2014-2015 policy period. Adapted from IRMI

The 2016 Policy Responds Because The Claim Was After the Retro Claims made 2012 2013 2014 2015 2016 Retroactive Date Injured Party Files Suit Wrongful Act Occurs The 2016 Policy Responds Because The Claim Was After the Retro Date

Claims made No Coverage 2012 2013 2014 2015 2016 Retroactive Date Injured Party Files Suit Wrongful Act Occurs No Coverage

Claims made - Pricing 2012 2013 2014 2015 2016 Retroactive Date Increasing Limits – Suggestion to Customer Injured Party Files Suit Wrongful Act Occurs

Claims made - Pricing 2012 2013 2014 2015 2016 Retroactive Date Injured Party Files Suit Wrongful Act Occurs

Wrongful Act The event triggering coverage under many professional liability policies. Typically, a “wrongful act” is defined as an act, error, or omission that takes place within the course of performing professional services. Adapted from IRMI

Examples of Wrongful Acts Real Estate Agents Failure to meet standard of care guidelines / breach of fiduciary duty. A client might allege an agent pushed for a higher price in order to get a higher commission for himself, but ultimately cost them money. In so doing, fiduciary duty was breached. Unfair treatment of clients or failure to provide adequate guidance. Clients could allege that an agent dropped the ball on a deal by being too busy working with other clients and couldn't put in an offer on time for them, causing them to lose out on a home they desperately wanted. Adapted from Insureon

Examples of Wrongful Acts Insurance Agents Failure to obtain coverage. A client calls to add a vehicle late Friday afternoon, stops by the office to pick up the ID card, but the vehicle doesn’t actually get added to the policy. An accident occurs and the claim is denied by the carrier. Failure to obtain adequate limits. A client insures a commercial building based on his estimate of value at $ 3,000,000. He suffers a total loss and the insurance carrier applies a coinsurance penalty based on their estimate of $ 6,000,000 value. The client sues the agent claiming that if the agent had told him how little the additional limits would cost, the client would have purchased the full $ 6,000,000.

Thoughts About Named Insureds Read the definition of Named Insured in the policy and any additional insureds in the endorsements Be sure all Named Insureds and additional insureds are brought forward to the new policy If a claim is asserted against an Insured not on the policy, there’s a good chance the E&O adjuster will deny coverage The Named Insured should be styled exactly as it is on the Assumed Name certificate issued by the Secretary of State Be very careful in the event of sales, purchases and mergers….seek advice

Exclusions Normally found in Professional Liability Policies Criminal, dishonest, or fraudulent wrongful acts or knowing violations of rights or laws. Claims by one insured against another Contractual Liability Claims Each exclusion has its exceptions and conditions….they must be read and evaluated

Which policy is better for me? Final Thoughts Words matter….if you do not understand phrases in the policy, ask an underwriter to clarify (in writing). If the underwriter can’t help, get someone in the claims department to help (in writing). Policy language can change from renewal to renewal. Be vigilant. Are you ready to answer the question: Which policy is better for me?