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PF&M at a Glance Professional liability Many actions we take during our lives have the potential to create harm to others and, in turn, trigger legal consequences. Problems may arise through our personal activities, including recreation and hobbies. They may also occur while performing our jobs. There is a particular danger of loss accompanied by legal ramifications when a job has a higher, expert status. When a party has a certain level of expertise, there is a higher expectation regarding job performance. And that means that there is a greater chance that someone will be very unhappy if the performance fails to match or exceed expectations. Professionals, such as doctors, lawyers, and accountants, have long been held highly accountable for the consequences of their decisions. While such professions are the most prominent, many other occupations face an exposure to liability loss that needs special protection, including (but not limited to) pharmacists, architects, engineers, opticians, beauticians, insurance agents, and expert consultants. In most instances, a commercial general liability (CGL) policy will protect a business insured against the damage or injury its actions may cause to others. However, this policy is designed to handle routine, fairly generic, and low-risk activities. Examples are customers who cut their hands on a sharp edge of an office’s reception desk or a customer who is hurt when she collides with a clerk who is stocking a shelf. Much more is at stake with professional activities. Consider several aspects that make professional liability tougher to insure: • Professional advice—Persons who need professional liability insurance are those who are sought out by the general public as experts. They are asked to assist with special issues such as personal health, expensive business transactions, or personal crises. Many of these complicated situations also involve a high level of emotion. When something goes wrong, it is much more likely that a client will pursue “justice” through the courts. • Professional reputation—Any claim a client makes against a professional involves that individual’s reputation. In so many instances, paying such a claim is an admission that a mistake was made. The professional may suffer from a lowered status and could face sanctions from related professional associations or regulatory authorities. Further, many professionals are proud of their standing and their abilities; admitting being wrong is usually fiercely resisted. • Higher defense costs—Defending against claims of professional error or incompetence is usually very expensive and time-consuming. Trials will usually involve expert testimony and technical arguments. Since a claim or lawsuit is often viewed by the professional as an attack on his or her abilities, the chances of resolving issues quickly (particularly via a settlement) are extremely low. • Identifying a loss—The timing between when a loss occurs and when a claim or suit is filed can be a mystery. A professional may find out she’s being sued today for something that happened 10 years ago. The potential for a huge time gap before a claim arises makes professional liability a very difficult type of business to underwrite and to price. Special coverage, called professional liability or errors and omissions, is designed to protect against losses arising from professional activities. Such policies protect an insured against losses involving liability imposed by law for damages caused by allegations of any wrongful act, error or omission. This protection also applies to parties for whose acts the insured is legally liable. It is important to know that, in order to qualify for coverage, an act, error or omission must be directly caused by performing (or failing to perform) professional services. Further, the services or incident must be related to the particular type of professional coverage. In other words, a medical malpractice policy won’t respond to a claim involving an elementary school board act. Specialty policies offered by specialty insurers exist to meet the above exposures that fall outside of those covered by a CGL. The coverage can be difficult to understand since such coverage wording and terms often differ according to the company providing the protection. Please note that this is only an overview of this coverage. A thorough discussion of several professional programs may be found in the PF&M Analysis from The Rough Notes Company. Agency OnLine subscribers, please refer to our sections dealing with specialty policies for more details. * |
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