Maintaining continuous Professional Liability Insurance is the foundation to building a solid risk management program for your firm and is critical to protecting the financial viability of your firm. Having insurance in place is a good first step but understanding your reporting responsibilities in the event of a claim is equally as important.
Every year we see claims filed by insureds that subsequently are denied for coverage the Insurance company. The vast majority of these denials are due to the insured having knowledge about the claim prior to the inception date of the policy and failed to report the claim during the applicable previous policy period.
Don’t let the investment you have made through the payment of insurance premiums to protect your firm not be there when you need it. Let’s review features of your policy that will help you manage timely reporting and detecting early signs of a potential problem.
What Defines a Claim?
Your policy defines a lawyers professional liability claim as a demand, civil proceeding, or service of suit seeking damages. Other events that are considered a claim under your policy would be the institution of alternative dispute proceedings or a demand by a client for services.
When Should You Report it To Your Insurance Company?
If you become aware of any of the forgoing you should immediately contact your insurance carrier. Typically, the claim reporting provision of your policy requires a claim to be reported to the insurance carrier in writing as soon as possible and no later than 60 days following the expiration date of your policy.
Don’t wait. As soon as you become aware of a claim, report it to your carrier.
What Are Potential Claims?
Underwriters of lawyers professional liability policies realized many of the claims that ultimately got reported, stemmed from circumstances their insureds were dealing with well before the actual claim was made and reported.
To address this phenomenon, insurance companies decided to define potential claims and provide a means for them to be reported, in hopes it would help control claim costs. As a result, in addition to the claim reporting provision in your policy, you also have the ability to report potential claims.
Potential claims are facts or circumstances that you believe may give rise to a claim. A potential claim might take the form of a client voicing displeasure over services provided. Or a client threatening to take legal action against your firm. While, these two events do not qualify as a claim, they should be taken seriously and reported as potential claims.
If a potential claim reported evolves into a claim during a future year, the policy in place at the time you reported the potential claim will respond.
Potential claim reporting is a benefit to both the carrier and you, providing early intervention to assess and, if necessary, mitigate a problem before it turns into a claim.
Extensions of Coverage
Your policy also includes a number of extensions of coverage which provide financial assistance for non-claim circumstances.
Subpoena assistance coverage will assist in the event you are served with a subpoena. The insurance company will appoint an attorney to provide advice to you regarding the production of documents and prepare for and represent you at depositions. If you report a mater under the subpoena extension, will be deemed a potential claim.
Another extension available is Regulatory Inquiry Proceeding extension which provides coverage in the event of a State Licensing Board or other state or governmental regulatory body initiates an investigation against you.
In addition, your policy also provides coverage for disciplinary proceedings received by you and reported to the company during your policy period. Unlike the Subpoena extension, matters handled under these extensions are not considered claims under your policy and therefore do not erode your limit of liability. Rather they each specify a dollar amount up to which the carrier will reimburse you for in covering attorney or expert fees you incur.
Be aware, reporting of extension related matters must comply with the claim reporting conditions outlined in your policy. Similar to potential claims, matters manifesting under one of these extensions may develop into more significant problems down the road, so attempts to manage them early on will benefit you.
Timely reporting of claims and heightening your awareness of potential problems are sound risk management practices to build into your firm. As you renew your insurance this year take some time to review client engagements. Are clients current with their bills? For clients with outstanding balances are there any known issues causing them to be late? Also, survey your staff to see if they are aware of any client complaints or threats? If after completion of your review, you identify facts or circumstances that may reasonably give rise to a claim, be sure to disclose the information on your renewal application.
Posted by Kyle Nieman
Kyle Nieman, a 25 year veteran of the insurance industry, is President and Chief Executive Officer of Amerinst Professional Services, Ltd. Most recently, Kyle was senior vice president of distribution strategy at CNA where he managed agency/broker relationships and cross-sell strategies. Prior to leading distribution, Kyle was Vice President of Underwriting for CNA’s multiple professional liability portfolios including accountants, attorneys and real estate agents. For over 20 years, Kyle was responsible for underwriting and program management for the AICPA endorsed professional liability program and several state bar programs at CNA and at Crum and Forster where he started his career.