Contingent Bodily Injury/Property Damage Part 2 (5/8/08 Knowledge Knugget)

How can a professional liability policy cover contingent BI/PD? Keep in mind that the following examples do not apply to design professional or healthcare liability policies, where the risks have a direct exposure, and the policies address it accordingly. 1. A policy may have no BI/PD exclusion. This is rare and does not actually extend coverage. The carrier may still put forth an argument about the BI/PD having arisen from the rendering of or failure to render professional services, since the damage would not be a direct result of the services, but rather an outgrowth of a third party's use of or reliance upon those services. 2. A policy may have a BI/PD exclusion with narrow wording. A typical exclusion applies to claims "arising from, related to, or in any way connected with bodily injury or property damage....". This wording can be used to exclude coverage for any claim where bodily injury or property damage is at the root of the harm. A narrower exclusion that says the policy does not apply to claims "...for bodily injury or property damage..." is generally understood to apply to direct infliction of harm, leaving the door open for contingent claims. 3. A policy may have a BI/PD exclusion with a carveback for claims arising from the delivery of professional services. Wording such as "....however, this exclusion does not apply to claims arising from...." This is a pretty straightforward solution and is just about the best you can get. 4. An affirmative coverage grant would be the best possible way to address this exposure. It is not common. With an affirmative coverage grant, BI/PD could be included in the definition of Wrongful Act. We do frequently see "Personal Injury" included in the definition of Wrongful Act for some classes of business, such as real estate or insurance agents. Think through this example: A software developer creates a program that operates a robot on an assembly line. The robot goes haywire and starts knocking parts off the conveyor belt, and thrashing around, destroying equipment. Which exclusion or coverage clause would you prefer? Check the blog in the next couple of weeks for more detailed explanations and thoughts beyond the scope of the Knowledge Knuggets.

Contingent Bodily Injury/Property Damage Part 1 (5/1/08 Knowledge Knugget)

What is "contingent bodily injury/property damage" coverage? And why do you care?

General Liability policies cover bodily injury or property damage arising from the insured's operations or products. They also generally exlude claims arising from professional services, thereby limiting coverage for a professional to premises liability.

Professional Liability policies cover claims for damages made against the insured by a third party arising from a Wrongful Act. The Wrongful Act is generally an error, act or omission in the rendering of or failure to render professional services.

For most classes of professional liability coverage (Architects and Engineers, and Medical Malpractice being the notable exceptions), there is some kind of exclusion regarding claims arising from bodily injury or property damage.

What happens if your insured is a home inspector, and he fails to notice a leak in the roof? The leak goes undetected until the ceiling collapses. Could he be liable for the collapse? Would his GL policy respond?

If we want the home inspector to have coverage for property damage that occurs due to his negligence, we need to make sure that his professional liability policy provides contingent bodily injury/property damage coverage.

The "contingent" part of that phrase refers to the BI/PD arising *as a result of* his professional services. They are not a result of his direct actions. They are a result of others relying upon his expertise.

More examples and detail to follow next week......

Tech Talk - 1st Party Exposures, Part 3 (4/24/08 Knowledge Knugget)

How are first party technology/cyberliability policies addressing your clients' exposures?

There are many markets offering monoline first party policies, and even more offering first party coverage as part of a combo policy covering both first and third party exposures.

These policies cover many non-physical and some physical causes of loss, provide extra expense and business interruption coverage, and other bells and whistles. Perils and coverages vary widely. A quick run-down of possibilities:

Perils covered include:

• Computer virus
• Unauthorized access
• Employee mistake or tampering
• Internal/External hack attacks
• Denial of service attacks (such as flooding bandwidth)
• Loss to customers or vendors that impacts your client's business
• Cyber-extortion
• Natural disaster
• Power surge
• Theft/physical damage

Types of loss covered:

• Business interruption
• Extra expense
• Forensic expense
• Data recovery cost
• Public relations cost

What does a D&O policy cover?

One of my agents just asked me for a brief overview of what a D&O policy is supposed to do. One of his clients has an attorney who is recommending they purchase the coverage (good attorney!!). But apparently, the attorney could not explain to the client's satisfaction *why* they should have the coverage.

Below is a copy of the very high level overview. Feel free to use it to educate your insureds.

D&O Coverage Overview

By law, directors and officers of corporations bear legal responsibility for certain actions pertaining to their management and oversight of the entity. This responsibility arises generally from the three common law duties of directors and officers. They are:

The Duty of Care

The Duty of Loyalty

The Duty of Obedience

When a director or officer violates one of these duties, claims can arise, brought by shareholders, customers, vendors, competitors, employees, or regulatory or governmental entities. Claims brought by shareholders can be made on their own behalf, or on behalf of the corporation (known as a “derivative” suit).

The corporation may or may not be able to indemnify directors and officers for their legal expenses and any settlements or judgments. Whether the entity is able to indemnify can be a matter of legality, parameters of the bylaws, or financial ability.

Directors and Officers liability policies are a common tool used to ensure that the entity will have the financial means to indemnify directors and officers for their expenses. The policy also removes some of the questions regarding legality or bylaws, because the entity is not forced into an adversarial position with the Ds & Os in order to protect its own assets.

Most directors and officers liability policies for privately-held entities have another coverage feature – the entity is also an insured. This is a recent coverage development, having begun in 1994.

This protection for the entity for claims brought against it for its own actions brings into coverage many causes of loss that used to be considered “business risk” and uninsurable.

Claims from competitors, vendors, and customers regarding business practices, competitive position, corporate conduct, and sometimes even contractual breaches can frequently be subject to coverage at least for defense, and sometimes for indemnity.

Incident Sensitivity, Part 1 (3/13/08 Knowledge Knugget)

What is "Incident Sensitivity"? The term "incident sensitive" is most common in medical malpractice, but the concept is universal in professional liability and critical in claims-made policies. In D&O policies and some other E&O forms, it's known as a "discovery provision" Incident sensitivity allows the insured to put its carrier on notice of potential claims, circumstances that the insured reasonably believes could arise in a claim, or an act that could be "wrongful" and result in a later claim. Once such an incident or circumstance is reported, the carrier will respond to a future claim arising therefrom as if that claim had been reported during the policy period. Why is this important? Tune in to next week's Knowledge Knugget to find out.

Intellectual Property Basics (3/6/08 Knowledge Knugget)

Did you know..... There are two types of intellectual property coverage? One protects your insured against allegations of infringement ("defense" coverage) The other provides your insured funds to protect their own intellectual property against an infringer ("abatement" or "enforcement" coverage) There are over 12,000 IP suits filed annually, with a median cost estimated at 5.5mm Being granted a patent does not mean that your insured is safe from infringing on others. The patent office uses different standards than competitors and courts IP coverage can extend to copyright, trademarks, and trade dress. It is not limited to patents

Tech Talk (2/28/08 Knowledge Knugget)

Insureds involved in Information Technology or those with Websites (especially sites which are more than content-only) have unique exposures.

The 2004 CGL form automatically excludes AI/PI for many of these insureds.

The following coverages can be found in technology or cyberliability forms:

• Intellectual property -- coverage for plagiarism; infringement of slogan, trademark, or copyright; unfair trade practices arising from same
• Unauthorized access -- unauthorized persons intruding into system, or authorized persons engaging in unauthorized acts
• Malicious coding or programming -- introduction of viruses or other harmful code

Other coverages may be available. Policies are manuscript, and coverage varies widely.