You know what they say, time is money. As an attorney, you probably know this all too well and like to spend your time in a valuable way. What you do in your unbillable hours should be just as productive for your business as your billable hours are to your clients.
One item that may be on your list of to-dos’ is that pesky professional liability insurance application. While protecting one’s self against potential client claims is necessary, the process to do so can be cumbersome, confusing and time consuming.
You may be asking yourself; can this application be shorter? Or, less time consuming?
While it isn’t possible to make the application shorter, it is possible to make it less time consuming. Understanding the in’s and outs’ of an insurance application as well as the information to know before you start filling it out will make the application process a breeze.
The Professional Liability Application
A professional liability insurance application is meant to collect all the necessary information to enable the insurance company to gauge the likelihood a claim could arise from the nature of the law practice. The company gauges the law firm profile against its tolerance for the risk factors presented by the answers to the application.
What the insurer is doing in underwriting an account is taking on a risk that claims may be made against the policy.
The nature and scope of the application’s questions are a function of an insurer’s claims experience as well as industry results and trends.
It can be frustrating to the applicant that there is a difference in what information is requested in applications for different insurance companies, as well as the fact that different or unexplained terms are often used. Frustration is compounded by questions asking for information not readily available.
There are several common areas of inquiry among professional liability applications: identification of the applicant, the firm’s location, prior insurance, attorneys working for the firm - all straightforward enough and easily answered. But, there is information requested that may not be as readily available– the date attorneys started with the firm, their employment status, and the number of hours worked annually. That information has bearing on aspects of coverage potentially afforded by the policy and whether the applicant qualifies for it or wants it. A little pre-work in assembling such information can save a lot of time in completing the application.
Another universal area of inquiry is the applicant’s existing insurance coverage. Quick reference to the existing policy will answer these questions.
Breaking Down the Application
Filling out a professional liability insurance application requires an understanding of unique insurance terminology. Below we have listed and explained some of the most commonly misunderstood insurance concepts and their associated terminology to help the process go more smoothly.
Claims Expenses inside/outside the limits of liability
When filling out the application, the firm will also be asked what coverage is sought for the next policy period. Coverage with claims expenses inside the limits of liability refers to a policy in which the amounts paid in defending against a claim reduce the policy limit available for indemnity payment; claims expense outside the limits of liability refers to coverage in which defense expenses are paid in addition to the policy’s limits of liability.
Per claim deductible is the amount an insured is required to pay on each claim reported in a policy period up to the aggregate deductible amount.
Aggregate deductible is the maximum deductible amount an insured would be required to pay on claims during the policy period, after which no further deductible payment is owed to the insurer.
Claims Made Policies
Lawyers professional liability insurance is issued by means of a claims made policy — a policy providing coverage that is triggered when a claim is made during the policy period against the insured for a wrongful act occurring after the prior acts date / retroactive date (both terms are used in applications for the same thing).
Retroactive Date refers to the date on or after which any alleged or actual act, error or omission must have first commenced in order to be considered for coverage under the policy.
A declarations page of a professional policy might indicate full prior acts in which case, there is effectively no retroactive date and thus no restriction as to the date of the alleged or actual act, error or omission. Claims-made insurance requires that the claim be made while the insurance policy is in force for coverage to apply.
Coverage is afforded for service rendered on behalf of the firm named on the policy as the insured. Career coverage is a policy provision that provides coverage for claims arising from the acts, errors or omissions of an insured when providing legal services at any law firm during or prior to the current policy period. But career coverage can cover claims arising from work done at any prior point in a lawyer's career, irrespective of where the lawyer worked. A policy may specifically name predecessor firms or coverage may be designated as full prior acts per attorney or for lateral hires.
Lateral hire refers to an attorney hired from another firm and for whom coverage is assessed similar to career coverage, i.e., for services rendered other than for the named insured firm (the firm named as the insured entity on the policy declarations page) – if the applicant firm wants to take on the exposure entailed by extending coverage for work performed at a previous firm. So, start dates are important in determining coverage.
The length of time covered attorneys has been in practice, or with the insured firm impacts the pricing. The risk exposure that an individual attorney presents to the insurance carrier in any given year increases for the first several years that an attorney practices as the number of potential plaintiffs increases with every matter the lawyer handles. The risk levels off as statutes of limitations and other forces begin to temper further development the risk that past activities will give rise to claims – typically after five more years. The pricing of this process of risk development is called step rating. Coverage for less than one year of exposure (newly admitted attorneys, for instance) are rated at the lowest step rate. Over the next five years the rate is automatically increased in set "steps" until exposure reaches maturity. This rating methodology is near universal for determining premium for claims made and reported insurance coverage.
Area’s of Practice
Another inquiry common to all applications is the applicant’s areas of practice. The practice profile must be determined by the proportion each practice area’s billable hours or revenue bears to the firm for the last fiscal year. Again, some pre-work will avoid having to stop filling out an application midstream to go back and hunt up the needed information. Unfortunately, the number of practice categories and how they are designated is different in virtually all companies’ applications. Some interpretation may be needed to include an applicant’s entire practice within the designated categories.
Companies inquire about various operational aspects of the law practice, but this should be pretty straightforward for the most part. However, the recent development of liability exposure arising from internet communication and transaction has caused many insurers to ask about the volume of disbursement transactions by a law firm and its cyber security measures.
All applications require disclosure of prior claims within a designated period. So be prepared to state when any such occurred, if it is in suit or resolved, what payments were incurred on the matter and a brief explanation of the claim. It is most important the accurate disclosure be made on claim questions regarding claims. Failure to do so could jeopardize coverage.
We get it, filling out insurance applications is a time consuming and tedious process that we could all do without, right? While the application may be the last thing you want to do, it is a necessary evil. Professional liability insurance companies need to get a full view of your law practice to be able to insure you properly.
When faced with the potential headache of filling out a new insurance application, it can be easy to think, “I’ll just skip it this year” and tell your current carrier “Just renew my current policy, nothing has change”. But the reality is this strategy could be causing you to leaving money on the table. In a world where time is money, spending the extra time to fill out an application and shop for alternative policies could save you money in the long run.
That being said, knowing what to expect in the application, understanding the terminology and preparing all the necessary information can help the application process go by in a flash. A little preparation before filling out an insurance application could save you and your law firm time and money.