Because professional liability coverage is established through the definition of professional services, and because the coverage is written predominantly on a claims-made basis, the issue of who is named as insured, and when, can make or break your coverage.
There are several situations in which the naming of the insured and the timing of the name can create challenges.
Here is an example:
Acme Corp. is insured with a policy running January 1, 2006 to January 1, 2007. In
October of 2006, Acme changes its name to Beta Corp. Nothing else changes. The operation remains the same; the ownership remains the same. You would want coverage to continue with no changes.
The agent will usually request the named insured be changed to Beta Corp in this situation. What you really want is to add Beta as an Insured. Here's why:
Although there would be a paper trail of coverage for both Acme and Beta in the '06-'07 policy, what happens when the policy renews January 1, 2007, and the Named Insured on the policy now reads "Beta Corp.," and Acme is nowhere to be found?
If a claim is made and reported on April 1, 2007, and the defendant is Acme Corp., does the policy need to respond?
Technically, unless there is predecessor firm wording in the policy, Acme Corp. is not an insured during the '07-'08 policy period, so a carrier could decline coverage. As a practical matter, if the '07 policy renewed with the same carrier that wrote the '06 policy, they would have a difficult time declining. However, if the '07 carrier is a new one, they have no history with Acme Corp., possibly no knowledge of Acme Corp., and even though they may have provided prior acts coverage on the policy, the defendant is not an Insured.
To avoid this stumbling block, leave the Acme name on the policy. Do not "change" the name. Merely add Beta to the policy.
Stay tuned for more examples and solutions next week.
Thursday, July 17, 2008
Thursday, July 10, 2008
Thursday, July 3, 2008
- Most professional liability policies contain what is known as a "consent to settle" clause. This coverage provision extends to the Insured control of the settlement of a claim. The insuror may negotiate a potential settlement, but cannot settle without the Insured's agreement.
- This provision arises from recognition of the potential reputational harm that can be done to a professional by virtue of a carrier settling a claim, thereby imputing liability where none may have existed.
- This reputational harm can have a negative impact on the professional's ability to earn a living, and can also be a magnet for additional claims. Carriers are very cognizant of this slippery slope and endeavor to avoid it by seeking the insured's agreement to any proposed settlement.
- In policies where the carrier does not assume the duty to defend, there is generally no consent to settle provision, as the carrier does not take control of the settlement negotiations. There are just a handful of exceptions to this rule.
- I have heard some people opine that the consent to settle provision is mere window dressing. After all, GL policies do not provide such an enhancement to their insureds. True, but GL claims do not speak to the reputation of the professional, do they? In any situation where all other things are equal, I would definitely prefer to provide the consent to settle to our insured, rather than underestimate its importance. Certainly, the decision to forego such an enhancement should be made by the insured. Not by his or her broker