Too often we see law firms report claims to their insurance company only to receive a response from the company that the claim is not covered.
The denial of coverage is typically the result of a specific exclusion or exclusions in your policy that void coverage.
While many of the exclusions in the professional liability policy are in place to clarify the scope of coverage, there are exclusions that can be triggered by your actions or your failure to act. Understanding these exclusions and your responsibilities within the policy will help you avoid jeopardizing coverage for a reported claim.
Below we have outlined the most common exclusions. Knowing these exclusions and how to avoid them will help you get the most out of your professional liability policy.
Common Exclusions In Professional Liability Policies
There are standard exclusions in professional liability policies that identify exposures that are not covered. Standard exclusions include not covering bodily injury claims including claims arising out of physical injury, disease or death. Property related claims are also excluded in professional liability policies.
Also common in Professional liability policies is an Insured vs. Insured exclusion. This prohibits coverage for someone meeting the definition of being covered under the policy from bringing a claim against another insured. The purpose of this exclusion is to eliminate coverage for situations such as employment practices claims brought by employees of the firm.
The policy will also exclude claims based upon or arising out of dishonest, intentional, fraudulent or malicious acts or involving intentional or knowing violations of the law.
Certain professional liability policies also do provide a carve out for innocent insureds. Innocent insureds are those who are unaware of a claim and who did not personally commit these acts. This carve out is referred to as innocent insured coverage and provides coverage to the innocent policy holders who are not involved in the excluded acts subject to all other provisions of the policy.
For example, in a two partner firm. One partner could be aware of a potential claim but not disclose it to the other attorney. These two attorneys may fill out a professional liability insurance application and mark “no” in the section asking about potential claims. If the potential claim does evolve into a claim and is reported to the carrier, the attorney with no prior knowledge would be considered an innocent insured and still be covered under the policy. On the other hand, the insured with prior knowledge of the incident would be excluded from coverage because of the concealment of the potential claim.
Prior Acts Exclusion
Your professional liability policy will have a prior acts date which typically is the date that you either started your practice or the date on which your first policy began.
Professional liability policies are written on a claims made and reported basis and respond to claims from professional services provided dating back to your prior acts date. Your policy will have a prior acts exclusion identifying the date continuous coverage begins. Keep in mind, claims arising from services provided prior to this date are excluded from coverage.
The key premise to professional liability insurance is maintaining continuous coverage spanning the time you practice law. We have seen situations where attorneys carry insurance for a period of time, discontinue their policy, then come back at a later date to begin coverage again.
Under this scenario, the new policy will reflect the date coverage is reestablished as the prior acts date and will only cover claims arising out of services provided from that day going forward. Any claims reported arising from services performed prior to the prior acts date will be denied.
Prior Knowledge Exclusion
As discussed earlier, professional liability policies are written on a claims made and reported basis which requires the policyholder to report a claim when they first become aware of the claim within the policy period. The timing of reporting a claim to the insurance company is critical and must take place within the same policy period during which the policyholder became aware of the claim.
Professional liability policies include an exclusion disclaiming coverage for facts or circumstances of which the policyholder had knowledge as of the effective date of the policy.
Be sensitive to situations that signal client dissatisfaction and when in doubt if something you have detected is a claim, report the matter immediately to your insurance company. In addition to claim reporting provisions in your policy, most policies also have a provision for reporting potential claims or reporting of facts or circumstances you become aware of that may reasonably be expected to give rise to a claim in the future. Once a potential claim or circumstance is reported, if a future claim is made under a subsequent policy, the previous policy wherein you gave notice of the potential claim should respond.
Taking Necessary Actions To Manage Your Professional Liability Coverage
Professional liability policies are not cheap, you spend good money to ensure you are properly covered. Therefore, you probably want to make sure you're doing all that you can to make sure your coverage is there for you in the event of a claim, right? Taking the following actions will help you take full advantage of your professional liability policy if you ever need it.
First maintain continuous coverage and avoid a lapse in coverage which may jeopardize your prior acts coverage. If you decide to change the structure of your practice by merging with another practice or if you decide to leave a firm to start your own practice, consult your insurance broker prior to the change to ensure you maintain continuity of coverage.
Second, make a practice every year prior to renewing your professional liability policy to review status of your current clients and question your staff if they are aware of any situations that occurred during the year that potentially might lead to a claim. If you identify facts or circumstances that may lead to a claim, report these matters prior to the expiration of your current policy.
Setting up an annual review of your insurance policy and your client engagements will help you avoid triggering an exclusion in the future jeopardizing your coverage.