Business and Professional Liability coverages were briefly discussed earlier in this text. This chapter will be concerned with listing various types of professional liability policies - such list being far from complete – with a discussion of coverages afforded.
It will be noted that the Errors and Omissions Policy is discussed in some detail. The following chapter “dissects” and Errors and Omissions (E&O) policy.
The Advertising Injury Liability policy provides coverage for liability claims as a result of injury arising out of an offense committed in the course of the insured’s advertising activities. However, the injury must rise out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright, title or slogan.
Broadcasters’ Liability Coverages are is necessarily broad and numerous. The policy covers liabilities arising from the use of incorrect news stories, libel and slander, invasion of privacy, copyright infringement, and unauthorized use of plot, characters, or music.
This policy not only covers those exposures, but it also covers defense costs in contesting suits of claims. Employees are covered as insureds while acting within the scope of their duties.
The News Media has been quite successful in using the First Amendment to protect their broadcasting errors, however some “mistakes” have been so flamboyant that the Constitutional protection has failed.
The liability insurance policies covering beauty shops (parlors) and barbershops are some of the most interesting because of their coverages. There are no standardized forms, however most policies follow a particular format.
One of the differences between these policies and other Professional Liability policies is that many companies prefer to write the Premises, Products and Malpractice coverage in one policy. Where most Professional Liability policies do not cover property damage, this policy does offer property damage liability to cover claims for damage to the clothing of the customer and other property from spilled dyes or other coloring preparations.
Most of these policies cover any professional service while within the premises resulting from any work, treatment or operation, or the use of any preparation or appliance used in the operation of a beauty parlor or barber shop. Some of these policies define covered professional services specifically. Some of the areas covered in these policies are:
hair cutting bleaching
styling dyeing
singeing coloring by liquid dyes
trimming henna treatments
conditioning eyelash-eyebrow tinting
dressing eyebrow arching
shampooing tweezing or plucking
shampoo-tinting shaving or using wax for hair removal
hair & scalp treatments face & neck massaging
manicuring or pedicuring marcel, finger and water waving
Etc., etc.
Some of the unique specific exclusions are:
This form of liability insurance provides coverage for bodily injury and property damage arising from operations that have been completed, or abandoned. The incident causing the bodily injury &/or property damage must have occurred away from the any premises that is owned or rented by the insured.
The question as to when an operation is deemed to be “completed” arises frequently. The policy defines operations as being completed when:
The Contractor’s Liability Policy is usually composed of two parts: (1) Premises &/or Operations, and (2) Completed Operations, as described immediately above. It is possible for some contractors to immediately leave a work site and transfer the completed project to the owner, thereby negating the need for Completed Operations insurance.
The Premises/Operations portion of the liability insurance provides for payment on the behalf of the insured, all sums that the insured becomes legally obligated to pay as damages resulting from bodily injury and/or property damage, caused by an insured peril, and arising out of the ownership, maintenance, or use of premises and the contractor’s operations in progress.
As with other liability policies, this particular policy only pays those sums that the contractor is legally obligated to pay. In most cases, this would not allow for pre-trial settlement, but if the insurer feels that the insured is legally obligated to pay, then the insurer always has the right to make such payment.
In many contractual agreements, particularly in the construction industry, a separate agreement allows one party to assume the liability of another. These “hold harmless” agreements may either be written or oral. The extent of the agreement as to which and how much, etc., holding a party harmless, will vary significantly from contract to contract.
Assuming the liability of another increases the person assuming the liability to greater exposure and it would not be covered under a typical Commercial General Liability policy.
If two (or more) individuals are covered by the same policy, and a claim is made against one of the insureds for which another insured under the policy may be held liable, this coverage (by endorsement) will operate as if separate policies had been issued. Note, however, it does not increase the insurance company’s overall limit of liability.
Details of the Errors & Omissions insurance policy are outlined in detail elsewhere in this text, the fact that Data Processors E&O insurance is growing in popularity due to the advancement of technology leads to some discussions of the peculiarities of this policy.
Many firms perform data processing for others either on fee or contract basis. Frequently companies with their own data processing department may offer their services on fee or contract basis, to other companies. These firms will be facing the same liabilities as those who are exclusively in the data processing business.
Basically, the policy is like the usual Professional Liability policy and it provides coverage for all claims, which the insured shall become legally obligated to pay because of any negligent act, error or omission of the insured in the performance of data processing services to others. The policy usually has a deductible – generally $1,000 for each claim.
It excludes losses arising out of advice on methods, practices or procedures, or opinions on financial statements, the preparing of income tax forms, and liability for damage to the property of others, or for loss to the property of others while in the care, custody or control of the insured.
Policy forms used are not standardized and some are written on the Claims-Made basis and others Occurrence basis.
Directors and Officers (D&O) liability coverage has become very important for those who serve on the board or in an official capacity of non-profit organizations. Note that in some states some of the liability has been eliminated by various tort reform measures.
The reasons for this coverage are many, principally because nonprofit organizations are not immune from costly litigation in most jurisdictions, with the result that they are being sued more often and from more sources, despite the tort reform laws limiting the liability of nonprofit Directors and Officers. Directors and Officers are subject to the duties of diligence, obedience and loyalty and can be sued for negligence in the performance of these duties, and a liability claim could threaten the personal assets of Directors, Officers and Trustees. If the organization defends a D&O suit, it could drain the resources of the organization that is designated for its stated purpose.
Since the Civil Rights Act of 1991, and the Americans with Disabilities Act of 1992, suits related to employment for such things as harassment and wrongful termination, have increased substantially, and continue to rise.
Of all of the lawsuits against nonprofit organizations, more than half involve employees. Even with sophisticated efforts to avoid employment disputes, many claims can and are often alleged against such nonprofit organizations. Some of the claims that arise include:
This form of D&O coverage provides defense for the above, and more, and brought by a variety of individuals, such as:
CONSUMER APPLICATION
A wealthy widow passes away, leaving the bulk of her large estate to a Trustee with instructions to form a non-profit organization to provide assistance to families of those with Alzheimer’s’ disease. The Trustee approached several individuals of national and international fame, to serve on the Board of Directors. One physician who practiced exclusively in the field of Alzheimer’s disease was recruited but was apprehensive as his Medical Malpractice premiums might increase if he were sued as a result of a Board action.
Any organization of this type must, in order to attract well-known persons, provide the liability protection of a Directors and Officers Liability Coverage for Non-Profit Organizations. Usually the organization will pay the premiums for the coverage, which will be arranged so that as one Director replaces another, the new Director will immediately be covered.
This type of liability coverage protects the employer against any liability claims by employees or former employees, resulting from negligent acts or omissions in the administration of the insured’s employee benefits programs. Obviously, this plan is sought by large employers who provide considerable benefits to their employees.
For the purposes of this coverage “employee benefits programs” is defined to include group life and health insurance, profit-sharing plans, employee stock subscription plans, workers compensation, unemployment insurance, social security benefits, disability benefits, etc.
Coverage pertains to the “administration” of these plans, which may include counseling of employees, interpreting employee benefit program, and enrolling/terminating/canceling employee’s in particular plans, etc.
Basically this coverage protects the Corporation, directors and Officers and employees for claims resulting from wrongful termination, discrimination, sexual harassment, wrongful discipline and failure to employ or promote. Recently, the nationally televised hearings on the Clarence Thomas confirmation hearings brought this type of coverage into the headlights. And more recently, President Clinton’s workplace misconduct landed him in court with Paula Jones. Texaco, Denny’s, Baker & McKenzie, Montel Williams, Microsoft, and a host of other well-known names have made the big-city news recently. Unfortunately, there have been a plethora of small and medium size businesses that have also been hauled into court.
For example, between 1991-1995, the number of sexual harassment cases alone increased by 125%, amounting to $91 million paid to claimants. And this is a small portion of employment practice cases resulting in monetary awards. The median award for compensatory damages in employment-related discrimination cases in 1995 was $204, 310, an increase of 56% over the previous year. Plus punitive damages in 30% of those cases, with an additional median award of $160,000.
Because of the difference in types of businesses, products, number of employees, geographical location, etc., etc., there are many policies that can cover whatever hazards are present for a particular business. Several insurers offer their policyholders loss control programs, which helps the business to recognize, identify and correct issues which might lead to a claim. These valuable services are offered at greatly reduced rates, or in some cases, at no cost to the client.
Errors and omissions are (or definitely should be) well known to those who represent insurance companies. In fact, most General Agencies &/or carriers require that all of their representatives carry E&O insurance.
An E&O policy provides coverage for liability from errors or omissions in the performance of professional duties. Some of those who need Errors and Omissions Malpractice (also known as Professional Liability E&O Malpractice Insurance) are (but certainly not limited to):
Simply put, anyone or any organization that holds itself out as an expert in a particular fiend or discipline, and receives compensation in some form for this service or expertise, is subject to potential claims based upon professional liability, errors and omissions, or malpractice.
One of the principal protections that an E&O policy provides, is that of defense. Regardless if any firm takes every precaution possible to avoid liability claims, with today’s litigious society, anyone can – and often does – sue anyone for anything. Even if a firm or person is not specifically involved, they can be brought into court because of a cross-complaint against anyone and everyone who was even remotely involved in the work. Good lawyers are expensive and many require substantial retainers and deposits before they will do anything. And anticipation of a winning verdict which would include attorney’s costs may be worthless, as judgements still have to be collected even though the “winner” has already paid the retainer and other ongoing expenses. As the saying goes, “you cannot make a purse from a sow’s ear, or blood from a turnip,” etc.
Most professional liability policies are written on a “claims-made” basis, but sometimes coverage is available on an “occurrence” basis (these terms are discussed earlier in the text). Any prospective purchaser of professional liability insurance must know what they have and what they need to avoid gaps in coverage.
CONSUMERS APPLICATION
Morton’s Market is a large corporation of supermarkets operating in several states. Because of the cost of health insurance and the difference in benefits dictated by various states, employees who transfer from one state to another may find themselves with better or worse employee benefits after the transfer. Therefore, they elected to self-insure and administer their own employee benefits under the ERISA regulations.
One of the hazards that they would encounter, according to the insurance administrator that they hired for this situation, was that if an employee felt that they did not get the type or amount of medical care that they felt they should have, they could sue the employer. ERISA give the employer some protection, but recent legislation has diminished the protection, so additional protection is needed.
The Employees Benefits Plan Liability Coverage is perfect for this situation, as it pertains specifically to the administration of the programs.
To further illustrate this particular type of coverage, an Attorney’s Errors and Omissions Professional Liability is presented for educational purposes. It is important to remember that not all policies are the same, and even though the coverage may be the same, the policy format can change.
The Attorney’s Professional Liability Policy is very similar to the Physicians, Surgeons and Dentists Liability policy (described below). It provides coverage against liability for acts of omissions arising out of professional services performed for others, by lawyers or by persons for whom the insured is legally liable. For an additional premium, it is possible to cover the personal liability of the employees of the insured.
There are two coverage forms: Coverage A applies to individual lawyers, Coverage B applies to partnerships. The policy provides coverage for acts or omissions of the insured, which occur during the period of the policy regardless of when the claim is made. It also covers claims made during the period of the policy for any acts which occurred prior to the effective date of the policy (provided the insured did not know or could not reasonably have been expected to know, that such act or omission had occurred and which could then have created a claim).
The policy does not cover losses arising because of fraud or omission, caused by the insured or an employee. Further, since attorneys become involved with estates, trusts, etc., in a fiduciary capacity, there is no coverage for loss, which is sustained by the Insured as the beneficiary, or distributee of any trust or estate. However, there is a special clause relating to the duties of the insured as executor, administrator, guardian, trustee or similar fiduciary. The insured’s acts or omissions during the time that he is performing these duties are covered, but only to the extent that such acts or omissions are those for which he would be legally responsible as an attorney for a fiduciary.
More specific coverages under one typical policy would be similar to the following:
Attorney Specialization‑ Lawyers who specialize in a particular branch of the law are held to a higher standard of conduct than a general practitioner.
California Policy Cancellation and Non‑Renewal ‑ The Cancellation and Non‑Renewal Condition found in the insured’s policy form states the circumstances under which a policy may be terminated. The reasons for cancellation, the time notices required, the procedures to be followed, and the computation of return premium will all be outlined for the insured’s use. California has a special Amendatory Endorsement regarding policy termination which may delete or expanded typical policy terminology that must be carefully considered in order to understand the rights and obligations of the policyholders.
Claim ‑ A representative policy definition of Claim is a demand for money upon the insured, including service of suit, or institution of arbitration proceedings against any insured. However, depending on the policy the "Demand" may be defined as written or verbal or may simply be the insureds knowledge of an incident or circumstance that may lead to a claim. In the latter case insureds may be reluctant to report an incident to their carrier fearing a increase in premium or a non‑renewal of their policy. (It is advised that the client should always make the claim with the insurer, and in any event, if another claim is ever entered, the insured must make the present situation known to the insurer.).
Claims Made Policy ‑ The “claims made” policy is the vehicle by which nearly all professional liability insurance is made available. Coverage must be in force not only when the claim is made but also when the alleged act, error or omission that results in a claim occurred, or there is no coverage.
Covered Damages – Covered Damages is defined as a monetary judgment, award or settlement for which the insured is legally liable resulting from the rendering of professional services. However, punitive or exemplary damages, multiplied portion of multiplied damage award, fines, penalties, sanctions, and return of insured's fees are excluded from coverage.
Covered Defense Costs ‑ Fees charged by any lawyer designated by the insurance carrier, and other authorized fees, costs and expenses to investigate, adjust, defend or appeal of the claim against the insured. Claim expenses do not include salary charges or benefits of regular employees of the insurer or supervisory counsel designated by the insurer.
Coverage for Past Partners or Employees‑ If an attorney leaves an ongoing firm that maintains its professional liability insurance, he or she will still have coverage for his professional services performed on behalf of his old firm. If however, the old firm dissolves or fails to maintain a current policy or obtain tail coverage (specific coverage for existing claims) there is no longer any coverage for a subsequent claim.
Deductibles ‑ Deductibles generally apply to both claim expenses and indemnity payments made by the insurance company on behalf of the insured. The insurer anticipates that by the presence of a deductible will induce a positive effect on the loss prevention activities of the firm, as it would have to share in any loss with the carrier. Conversely, the insurer would not want to impose so large a deductible that the insured would find it difficult to pay. Also, a higher deductible has the effect of reducing the premium to the benefit of the insured. Some carriers offer Aggregate Deductibles where there is a maximum amount per policy year that the insured will have to pay - regardless of the number of claims. Certain insurers have offered a “First Dollar Defense” whereby the deductible applies only to covered damages but not to the costs of defense.
Defense and Settlement Procedures ‑ Within policy limits the insurer has a duty to defend claims even if they are "false, groundless or fraudulent." Any settlement or compromise negotiated by the insurer and acceptable to the claimant requires the consent of the insured. However, if the insured refuses to accept the settlement recommended by the insurance carrier, he is then responsible for any additional damages and claim expenses in excess of the amount the insurer and claimant had previously agreed upon (this provision is sometimes referred to as the “arm-twisting” provision). The selection of defense counsel is made by the insurance carrier. However as a practical matter, most carriers will consider the views of the insured regarding choice of counsel.
Exclusions ‑ Exclusions are an important part of any insurance policy and often determine the choice of one policy over another. Even when exclusions deal with the same subject matter, the treatment may differ significantly from one policy to the next. The exclusions commonly found in attorney's professional liability insurance policies where coverage shall not apply are:
1. Intentional Dishonest, Fraudulent, Criminal or Malicious acts. It is important to determine if the policy will provide defense if such a claim is made against the policyholder, and it must also be determined if coverage for “Innocent Insureds” remains in force.
2. A claim by any insured person or entity against any other insured person or entity. Professional Liability Insurance was never intended to become involved in conflicts within a law firm. If it is believed that there could be problems with employment practices, for instance, wrongful termination or sexual harassment problems, the firm may wish to consider Employment Practices Liability Insurance.
3. A claim against any insured as the beneficiary or distributee of a trust or estate.
4. A claim for bodily injury or injury to or destruction of tangible property or resulting loss of use. ‑ However, this exclusion does not apply to personal injury or bodily injury arising from personal injury in the rendering of professional services. Coverage for claims of bodily injury or property damage more properly falls under the Commercial General Liability policy.
5. Claims arising out of any insured's services or capacity as:
a. an officer, director, shareholder, partner, manager, trustee, owner or employee of a business enterprise, nonprofit organization, charitable organization or pension, welfare, profit‑sharing, mutual or investment fund or trust. (These firms or entities should maintain their own professional liability policies or be named on the insured's policy).
b. Public Officials, or an employee of a governmental body, subdivision or agency. These organizations should obtain there own Professional liability insurance, except where a policy exclusion allows a lawyer to provide legal services to public service organization on a fee basis.
c. A fiduciary under ERISA of 1974 and its amendments or any regulation or order issued pursuant thereto, except if an insured is deemed to be a fiduciary solely by reason of legal advise rendered with respect to am employee benefit plan. Attorneys who are involved in the investment of funds however require separate fiduciary liability coverage.
6. Various forms of discrimination as defined in the policy. Depending on the form, this exclusion may be broadly applied or limited to employment situations. Claims involving discrimination in employment would properly be covered under Employment Practices Liability Insurance. Some policies do not contain this exclusion but would deny a discrimination claim contending that discrimination has nothing to do with the rendering of professional legal services.
7. Other Exclusions ‑ A number of other exclusions on a broad range of topics will be found in professional liability policies dealing with everything from investment advice to nuclear energy (see discussion above).
Extended Reporting Option ‑ The extended reporting option, also known, as tail coverage is available for the attorney who retires from the practice of law. This allows an attorney coverage for claims that are made after the policy has expired. However the claim resulting incident must have occurred before policy the policy expired. The policy limit available for claims is not reinstated and is limited to the available remaining limit. The premium for the E&O is based on the premium for the last policy year. It is a sliding scale based on the number of year’s tail coverage the attorney thinks is necessary.
Insured Individuals and Entities – In most policies, the Named Insured and any Predecessor Firm are defined as the “insured.” Note that this definition is extended to include any lawyer or professional corporation who is or was an owner, partner, officer, director, stockholder or employee, but only for professional services rendered on behalf of the Named Insured or Predecessor Finn. Any lawyer or professional corporation designated as "Of Counsel" or independent contractor while acting solely on behalf of the named insured may be covered with the permission of the insurance carrier. Further, coverage is provided for the estate, heirs, executors, administrator’s legal representatives of each Insured in the event of death, incapacity, or bankruptcy, but only to the extent that the Insured would have been provided coverage by the policy.
Lapsed Coverage‑ When a policy has lapsed (for any reason, non-payment of premium or whatever), all policy coverage ends regardless of whether or not coverage was in force at the time a claim triggering incident occurred. Even if a new policy is purchased later, it would be nearly impossible to regain prior acts coverage that has terminated when the policy had lapsed.
Lawyers Professional Liability Insurance Form ‑ Insurance is provided in the form of a Claims-Made Policy that covers monetary loss and expense of an attorney or law firm for legal activity in the rendering of professional services as defined by the policy. The policy also includes coverage for claims of unintended personal injury.
Policy Limits – It is obviously important that policy limits are adequate to cover both the cost of Defense and Damages. In order to determine a proper limit, the policyholder must take into consideration a wide variety of factors including the size of firm, areas of practice, claims history, case size, and any other circumstance that will help to determine the maximum loss the firm may suffer in a worse case scenario. It must be understood that higher limits naturally increase the premium, but since there are very few claims that rise to the level of maximum loss, the extra charge for higher limits is on a sliding scale and therefore can be quite affordable. Policy limits are available on both a Single Limit and on a Per Claim and Aggregate basis. The latter allows for multiple claims up to a per claim limit that the insured has determined adequate for any one claim, and is less expensive than choosing a single limit to cover multiple claims, where no one claim exceeds the per claim limit. For example, a single limit of $3,000,000 would cost more than a per claim and aggregate limit of $1,000,000/$3,000,000 and would serve no better in the described example. In addition, it must be considered that multiple claims that result from a single or related group of incidents will be considered as one claim under the policy.
Prior Acts Date ‑ Policies either contain a Prior Acts Date or are designated as having Full Prior Acts. The “prior acts date” is normally defined the same date from which continuous coverage was first obtained by the current or predecessor firm. Claims triggered by events occurring before this date are not insured. If a firm changes insurance carriers, it is important that the same prior acts date appears on the new policy. The Prior Acts date is also referred to as Retroactive Date.
CONSUMER APPLICATION
Shak, Ratl & Wroll, is a partnership of Attorney’s. They carry an Attorney’s E&O policy. They represent the estate of Simon West. The firm is named as Executors of the estate, and in this capacity he searches for and finds Simon’s brother, who had been at odds with Simon and had not been mentioned in the Will. The brother is struggling financially, so Shak give him $100,000 from the estate, and loans him an additional no-interest loan of $500,000.
The Will of Simon instructed the estate Executors to provide funds for local educational purposes. Ratl purchases personal computers for the local elementary school.
Shak and Ratl are sued by the nephew of Simon who had considered himself as the sole heir to the estate and was contesting the Will. The nephew sued as illegal distribution of estate assets.
The gift and no-interest loan would not be protected under their E&O policy as the giving and loaning of funds was not something for which he was legally responsible as an attorney for a fiduciary.
The Ratl action falls within the duties of the attorney for the Executor and would be covered under the policy.
Fiduciary liability provides coverage for a loss that the insurance becomes legally liable to pay because of a claim made against the insured for alleged wrongful act by such insured (or by any other person for whom the insured is legally responsible. This coverage is also known as “pension trust liability” as it relates exclusively to pension trust situations. Under this plan, the term “wrongful act” includes violations of the responsibilities, obligations, or duties that are imposed on fiduciaries by the Employee Retirement Income Security Act (ERISA) as well as any act or error &/or omission in the performance of the duties of the plan administrator.
The ERISA definition of a fiduciary is any person who is named in the plan, or any person who has any discretionary authority or control with respect to the administration or management of the plan or assets of the plan. ERISA sets form strict guidelines for fiduciaries, and violations can result in lawsuits from employees, former employees, beneficiaries, the Secretary of Labor, Treasury Department, and Pension Benefit Guarantee Corporation. In addition to the fiduciaries at risk, is the Sponsor Corporation as well.
According to ERISA, an employee benefit plan includes any plan, fund, or program established or maintained for the purpose of providing employee benefits to its participants or beneficiaries. Under a fiduciary liability policy, the insured is defined as (1) the sponsor organization, (2) the plan(s), and (3) any natural person in their capacity as fiduciary or administrator of the plan(s).
CONSUMER APPLICATION
The Nevada General Corporation, a large, worldwide company with 150,000 employees, has emerged after several smaller companies have been merged into Nevada General. The various companies all had some sort of retirement plans and other employee benefits. Smith, a Human Resource specialist, has been hired to create an employee benefit package for all of the employees. Since the company is growing rapidly, they do not wish to be burdened with a variety of benefits that they would have to administer, particularly in health insurance. Smith is able to find and negotiate with a large international insurer to create health insurance plans that are acceptable and will cover all of the employees. However, the retirement plans are so different among the employees that Smith decided that the only way to proceed was to consolidate the retirement income plans into one plan under government (ERISA) guidelines.
The corporate attorney nearly panics when he discovers the tight regulations that govern any ERISA retirement plans. However, Smith proves that there is only one option, and that is for the company to administer their own plan.
To protect the company against lawsuits by employees or former employees, and even from government agencies, it is necessary that insurance for any wrongful act by Smith, or his superiors that create a claim, must be obtained. The Fiduciary Liability Coverage would be the most appropriate special coverage for this situation.
Fire Legal Liability Coverage provides coverage if the insured leased or rented property for which they could be held legally liable for damage to the property due to fire or explosion.
This type of plan maybe referred to as the General Partner’s Liability and Limited Partnership Reimbursement coverage. The responsibilities of a General Partner in the area of management and fiduciary responsibility, is very similar to that of a Director or Officer in a corporation. The exposure arises when general partners become the financial managers of a limited partnership.
Claims can arise for a variety of reasons, such as false statement (written or oral) by the general partner, any breach of fiduciary duties, not fully disclosing pertinent facts regarding the business, conflict of interest, failure to devote proper time to the partnership, appointment of contracts without proper “due diligence” actions, etc.
Hospitals, like Doctors and other medical professionals, need liability insurance to protect against claims arising out of rendering, or failure to render professional services. This policy also covers claims arising out of medicine, drugs, food, medical appliances, and other products distributed, administered or provided to their patients.
Anyone who has eaten in a hospital cafeteria may wonder if the hospital had insurance on the “quality” of the food. While the policy does not cover “quality”, it does cover food served to patients. However, food provided in a hospital cafeteria or provided to guests, are not covered under this form. Coverage would be available under the Hospital’s General Liability policy – and most hospitals have General Liability to cover such exposures, as well as other exposures acquired in the conduct of general business.
One difference from other liability policies is that the Hospital Liability policy does not exclude liability for damage to the property of others in the care, custody or control of the hospital. However it will not cover the loss of personal effects of a patient unless the loss arose out of professional services administered by the hospital. In addition, most liability policies exclude exposures relating to motor vehicle use, ownership, maintenance, or loading/unloading of motor vehicles, but the Hospital policy does not exclude liability arising out of treatment of an individual in an ambulance.
Interestingly, since a large number of hospitals are operated by churches, asylums, schools and other nonprofit organizations, they are not necessarily immune from liability exposure. At least 25 states have legislation that charitable institutions are no longer protected from liability for their acts. Most of the other states allow charitable institutions immunity from liability but only under very specific conditions.
Insurance Agents and brokers are responsible for protecting the interests of their clients and the companies that they represent. Any acts or omissions rendered by them or by those that they employ, can make them liable for damages. The Insurance Agents and Brokers policy is actually an “Errors and Omission” coverage and is very similar to other professional liability policies. These policies are available through companies, organizations, or agencies, or on an individual basis.
As other Professional Liability policies, it provides coverage against any claims by individuals or insurance companies represented by the insured. As other similar plans, the policy will pay any awards assessed against the insured, but also will provide defense against suits alleging negligence covered by the policy, court costs, and other legal expenses.
The policy excludes dishonest, fraudulent or any criminal acts by the insured (or employees) and also excludes libel and slander.
Most of these policies have a substantial deductible, and has an aggregate limit applicable to all claims during the policy period.
Some policies are “Claims-Made” and others are “Occurrence” types of plan.
CONSUMER APPLICATION
Bill Bates is an insurance agent specializing in life and health insurance. He has never had any problems with marketing of life insurance as he has meticulously followed company guidelines. He now has an opportunity to work for Senior Citizens Agency, which markets life and health products to Senior Citizens, such as Medicare Supplements and Long Term Care.
Bill meets with Elsie, age 70, and sells her a Medicare Supplement policy, a small life insurance for funeral expenses, and then convinces her that most of her savings that are now in CD’s should be in an annuity. When he mentions Long Term Care insurance, Elsie becomes rather agitated, as she does not want to “end up in a nursing home.” Rather than upset his client and possibly lose all of the policies that he has sold her, Bill drops the subject without further discussion.
Six months later, Elsie has a stroke and find herself in the nursing home, unable to take care of herself. Medicare paid for some of the Skilled Nursing care that she needed, but when she needed only custodial care, she had to pay for it herself. Elsie’s children would have to pay for the nursing home, as the payments from annuities were not sufficient to pay all of the nursing home costs. They met with Bill to see what resources Elsie had. A son-in-law who was an attorney became very upset when he asked if Bill had discussed Long Term Care with Elsie, and Bill was unable to show that he had even mentioned it.
The heirs sued Bill for not discussing Long Term Care insurance with Elsie, as Bill had been the only agent with whom Elsie had any discussions with regarding insurance, prior to her stroke. If he had done his job properly, he would have discussed Long Term Care insurance with Elsie, and if she rejected it, there would have been a notation to that effect signed by Elsie. Now the heirs will not receive all, if any, of there anticipated inheritance.
Suits of this type are not unique and most Long Term Care insurance companies and agencies specializing in the Senior Market officially notify their agents of the necessity of offering Long Term Care insurance or documenting the refusal to purchase. The Agent’s Error’s and Omissions policy will cover situations such as this, as Bill did not perform any dishonest, fraudulent or criminal act. However, Bill will have to pay a substantial deductible.
This is a general liability coverage whereby the insurer reimburses an insured & others so specified in the policy for medical and funeral expenses incurred by such persons, as a result of bodily injury or death sustained by accident. This coverage reimburses without regard to the liability of the insured or others provided for in the policy.
This plan provides coverage for any payment for which the insured becomes legally obligated to pay, due to bodily injury or property damage caused by operations performed for the named insured by independent contractors, and/or actions or omissions of the insured in connection with their general supervision of such operation.
Notable exclusions are maintenance and repair at the premises owned by or rented to the insured, or any such structural alterations at these premises that don’t involve changing the size of a building, or moving a building.
This policy is a “Protective” policy, which can be considered as a different and separate type of liability coverage. A “Protective” type of policy must be purchased by someone other than the insured, and it must protect the insured from liability because of the actions of other persons that are made on behalf of the insured – hence the name “protective” as it specifically protects the insured against others actions.
CONSUMER APPLICATION
Ann is the owner of an apartment building, which has been rented to others for years and is starting to appear rather run-down. She decides that she will remodel the apartments so that she can get higher rent, but in order to do so, she must wait until the apartment is vacant before she remodels. She uses the Remodel Inc. Construction Company to do the remodeling to her specifications. Remodel purchases an Owners’ or Contractors’ Protective Liability policy and pays for the premiums, to cover any liability that may arise involving Ann during the period of reconstruction and because of the remodeling.
Jim was visiting his sister who lived on the same floor as the apartment being remodeled. As he passed the doorway of the apartment being remodeled, some debris from the apartment fell into the hallway, hitting Jim and breaking his leg. This policy is designed to provide liability coverage for situations such as this.
During the time of remodeling, the building elevator accidentally fell two floors, injuring 2 passengers. The passengers normally walked up and down the stairs (2 floors) for exercise, but took the elevator because of their concern after what had happened to Jim. The policy would not cover the passenger’s injuries, as the injuries did not arise from the contractor’s operation.
Later, but still during the remodeling period, the contractor removed the top cover of the elevator so that they could bring long pieces of lumber and sheet rock up to the remodeling site. There was no service elevator in this building. The Contractor also propped the elevator doors leading to the elevator shaft open, so as to facilitate loading and unloading while they were bringing material to the job site. During this time, some tenants were riding in the elevator to reach their apartments while the contractor was not using the elevator. A piece of two-by-four from the remodeling process fell through the elevator doors that were kept open by the Contractor, and entered the top of the elevator cage, striking a passenger and breaking his collar bone. In this case, there is a direct relationship between the acts of the Contractor and the bodily injury to the tenant. The policy should cover this situation.
Personal Injury Liability Coverage pays for any claims of the insured or other designated covered persons, from lawful claims arising from false arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation, violation of privacy rights, wrongful entry, eviction or other invasions of right of private occupancy.
Pesticide or herbicide applicator insurance provides coverage to the named insured in those cases where discharge of pollutants (see below) or the release or escape of these pollutants is accidental and sudden, or if the insured’s operations are being performed away from premises owned by or rented to the named insured, while the injury/damage occurs away from such premises. All such operations in the latter case must meet all government regulations.
This policy is needed because a normal exclusion in a liability insurance policy are bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapor, soot, fumes, acids, alkalis, toxic chemicals, liquids of gasses, waste materials, or other irritants, contaminants, or pollutants into or on land, the atmosphere, or any watercourse or body of water.
The Physicians, Surgeons and Dentists Professional Liability Insurance policies are frequently referred to as “Medical Malpractice” policies and have been available for years from a limited number of specialty insurer on an individual basis, but many of these policies have been obtained under group policies issued to members of professional societies. In recent years, the number of suits and the amount of the awards have increased substantially. Those few companies who have remained in the Medical Malpractice field have increased their premiums for 300-400%, and are still concerned about staying in practice.
In some states, doctors have organized mutual companies to provide malpractice insurance and state regulators have attempted to consider ways of solving this problem. In some states, insurance pools have been started or are being contemplated.
Many Medical Malpractice insurance policies are on a claims-made basis, which will apply only to claims actually made during the term of the policy, even though the “error” may have occurred years previously. By doing this, this helps to eliminate the long “tail” of these policies, and allow the insurer to underwrite the exposure at a premium justified by the claims actually presented in one policy year. (See discussion Claims-Made Form)
It is very difficult to keep up with changes in medical malpractice legislation, however for illustrative purpose; the following states have made changes in recent years. For those who would like more up-to-date changes, membership in the Professional Liability Underwriting Society (PLUS) would provide information on the most recent changes and trends in Liability insurance.
Coverage can be provided to a doctor practicing as an individual, medical partnership, or medical professional corporation. In each instance, the policy pays all sums which the insured becomes obligated to pay as damages because of injury arising out of the rendering or the failure to render of professional service which falls within the scope of the insured’s profession.
Anyone who watches television is aware that there is a huge potential liability for failure to provide professional service. Many are not aware that a physician that does not visit a patient, with whom he has previously had as a patient and has previously undertaken to treat, may be held liable. It is also noted that a physician has certain limitations on his right to terminate his treating the sick person.
Nurses, Assistants, technicians, etc., when operating under the control of the physician, is covered under the policy. The insurer is obligated to defend any suit brought against the physician, even if it is false, groundless or even fraudulent. The policy covers only such sums as the insured is obligated to pay which arises out of injury that was sustained during the policy period.
As are many of these types of policies, it has two limits. It has a maximum amount that it will pay for damages arising out of any claims covered under the policy. It also has an aggregate limit, which is the maximum the insurer will pay for all claims under the policy.
Claims-Made Form – The form of liability insurance discussed above covers any claims occurring during the policy period (Occurrence Form). Lloyd’s (of London) policy form attempts to avoid being faced with the long tail of developing claims out of occurrences that occurred years previously by requiring that the claim be made during the policy period. When the coverage is first placed with Lloyd’s the “Retroactive Date” is the effective (inception) date of the policy. This date is used for all renewals thereafter and any policy thereafter (renewal) uses the one Retroactive Date. This “Claims-Made” form is used by many, if not most, professional liability insurers.
Lloyd’s policy also has the feature that if a Professional Liability policy is cancelled or is not renewed, there is a 36 months (Discovery) period that covers any claims against the insured, but for only those claims that arising because of injuries which occurred during the policy term (between the Retroactive Date and the termination date of the policy).
The Lloyd’s form takes more of a scheduled approach, as contrasted with the broad coverage afforded under other professional liability policies. The specific procedures are listed, with premiums shown for each insured procedure. For instance, more than a dozen forms of surgery, fitting contact lenses, certain X-ray procedures, etc. are all listed. However, an exception to the schedule approach is compliance with the “Good Samaritan” regulations, which provide that emergency medical care at the scene of an accident or other medical emergency care will be covered even though the treatment or procedures are not listed on the schedule.
CONSUMER APPLICATION
Dr. Samuel has been the family doctor for Bert and his family for many years. Bert has a history of high blood pressure, treated by Dr. Samuel with medication. Recently Bert developed heart problems and had several mild infarctions. Dr. Samuel treated Bert, provided his with prescriptions for medication, and recently, after meeting with a cardiologist, he suggested a by-pass operation. Bert went to another cardiologist, who told him that he did not need the operation, so Bert elected not to have the by-pass over the pleading of Dr. Samuel.
Three weeks later, Bert had chest pains and called Dr. Samuel, who refused to see Bert, but he told Bert that if he did not trust his medical judgement, then he could get another doctor. Bert’s wife found him on the floor, called 911 and an emergency by-pass operation was performed. Dr. Samuel refused to visit him in the hospital, so Bert had to get another doctor.
Dr. Samuel is susceptible to a suit for malpractice, as he can be held liable if he refuses to treat a patient with whom he had a doctor-patient relationship. The Medical Malpractice policy would be called into play in this situation.
This liability coverage closely resembles that of the Pesticide or Applicator coverage shown above, however it is much broader. It will pay all sums the insured is legally obligated to pay as a result of emission, discharge, release or escape of any contaminants, irritants, or pollutants into or on land, the atmosphere, or any water course or body of water provided this results in “environment damage.”
Further, it will pay reimbursement of expenses for reasonable and necessary cleanup costs which incurred in the discharge of a legal obligation validly imposed through governmental action, (again) provided such expense is incurred because of “environmental damage.” It will also pay for defense of any claim or suit covered by this policy.
The policy is written on a Claims Made basis.
“Environmental damage” is defined in one policy as “the injurious presence in or on land, the atmosphere, or any water course or body of water, of solid, liquid gaseous or thermal contaminants, irritants, or pollutants.”
Products Liability is defined as the liability for any bodily injury or property damage that is incurred by a business because of some defect in the product sold or manufactured; it may also include the liability incurred by a contractor after he has completed his contract, as the result of work that was improperly performed. (This latter portion is called “Completed Operations”).
The Property Management E&O policy pays on the behalf of the insured, all sums for which they become legally obligated to pay because of any act, error, or omission rising out of services rendered (or failed to render) by the insured. It also pays for any defense of any claim or suit arising out of such coverage.
Services can include property maintenance (performed or contracted for) renting or leasing, construction, alteration, land development, etc.
Claims may arise because of mishandling of accounting and financial matters mismanagement, exceeding authority under the contract, failure to perform, failure to maintain an adequate amount of insurance, etc.
Interestingly, this policy also covers the intentional acts of current &/or terminated employees.
CONSUMER APPLICATION
Windsor Trailer Park has been so successful in maintaining an excellent image in the community, that Mobile Home Estates contracted with Windsor to manage their mobile home park also. Windsor soon discovered that new employees that were hired to run Mobile Home Estates were incompetent so they were all fired and Windsor replaced them with new employees. The new employees were worse than the previous employees, and soon the Mobile Home Estates became “run-down” to the point to where they could not attract new residents and the present residents were complaining loudly.
When some of the present residents attempted to sell their mobile homes and were unsuccessful because of the reputation and the condition of the grounds and landscaping. They instituted a lawsuit against Windsor, its employees, and the previous (fired) employees.
A Property Management Errors and Omissions Liability policy would cover the lawsuit, including paying for any defense of such suit. It would also cover the suits against the former employees even though they no longer are employed by Windsor.
This policy provides coverage over the Liability insurance owned by the insured. It is also popular because it is very broad in its coverages and will cover many more exposures than the typical underlying liability insurance. There are exceptions, but they are specifically excluded and are few. The policy is subject to a deductible, usually such as $10,000.
This policy provides automatic replacement coverage for underlying policies that have been reduced or exhausted by loss.
The Umbrella Liability policy may be “extended” by the following (unless excluded)
Personal Injury Coverage – broader coverage than in the underlying policy and includes coverage for mental injury, mental anguish, shock, disability humiliation, discrimination, etc.
Advertising Liability Coverage – included in the definition of “personal injury.”
Blanket Contractual Coverage – included for both oral and written contracts.
Employers Liability Coverage – claims made by employees are not excluded.
Worldwide Coverage
Liquor Law Liability Coverage
Non-owned Watercraft Liability Coverage – can also cover owned watercraft if the owned watercraft is included in the primary insurance schedule
Drop-down Coverage – This is a unique coverage and provides coverage for occurrences within the scope of the policy but in the absence of primary coverage. It will be subject to a high deductible (for example: $10,000).
Additional Insured Coverage – This plan can be expanded to include Officers, Directors, stockholders of the named insured, and employees, while acting within their scope of duties. It will not cover liability of employee-owned autos. It will also add any additional insured named in the underlying insurance (for the same coverage), and any other person or organization to whom the insured is obligated under contract, with certain restrictions.
Care, Custody or Control Coverage – Accepting only liability assumed under contract
Occurrence Coverage – Matches the new standard primary policy definition.
Products and Completed Operations Coverage – Using the new standard policy provisions.
STUDY QUESTIONS
1. Bristol Levine Advertising has an Advertising Injury Liability policy. They devised an advertising program for Butte Electronics where a Sony TV was advertised for $299. After the ad hit the papers, it was discovered that Bristol misunderstood and the ad was for a Sharp TV, a much lower quality TV. John drove his pickup for 45 miles so that he could purchase the SONY. He is suing Bristol and Butte for his inconvenience.
A. The policy will pay for any awards against Bristol.
B. The policy will only pay if the suit against Butte is success.
C. The policy will not pay because the policy does not cover losses due to inconvenience.
D. The policy will cover both Bristol and Butte.
2. Broadcaster’s Liability Coverage is
A. very precise and limited in scope.
B. limited inasmuch as it does not cover defense costs in contesting suits.
C. very broad and covers many situations.
D. not available in most states as the radio/TV station covers the broadcasters.
3. A Liability policy that covers errors made in entering data into a computer is
A. Cross Liability Coverage.
B. Computer Data Entry Coverage.
C. Data Processors Errors and Omissions Insurance.
D. Data Entry Liability insurance.
4. C. Emmett Jackson III is a wealthy retired industrialist who has been asked to sit on the Board of Directors of Mammoth Services, Inc., a non-profit company, Jackson is concerned about lawsuits that could affect his personal fortune.
A. That is why he is being paid to serve on the Board.
B. Mammoth could (and should) purchase Directors and Officers Liability Coverage for Non-Profit Organizations.
C. Jackson should increase the limits on his homeowner’s policy.
D. Jackson could deposit a bond with the Secretary of State and would not otherwise be liable.
5. The type of liability insurance that covers a person who holds himself out to be an expert in a particular field and receives compensation therefrom, from claims of malpractice, would be
A. a Commercial General Liability insurance policy.
B. Personal and Homeowners Insurance.
C. Mistakes and Malpractice insurance.
D. Errors and Omissions insurance.
6. One of the principal advantages of an Errors and Omissions policy is
A. very inexpensive premiums.
B. it provides legal defense,
C. it is very easy to read and understand.
D. there are no agents commissions paid.
7. Herman and Lector are members of a large law firm. Herman reports to the partners of the firm that Lector made a billing mistake that cost the firm $100,000. Although Lector denied the charge, he was fired anyway. He thereupon sued the firm.
A. The Errors and Omissions policy will pay as it the suit was based upon an error of Lector.
B. The Errors & Omissions policy will not pay but the firm should file a claim with their Employment Practices Liability insurer.
C. There is no insurance that will pay for a squabble in a law firm.
D. The suit will be thrown out as lawyers cannot sue other lawyers.
8. In order to have liability protection against property damage to rented property in case of explosion because the annual check of the furnace was omitted, the owners may purchase
A. Errors and Omission insurance.
B. Fire Legal Liability Coverage.
C. Fire and Extended Coverage.
D. Fire and Boiler insurance.
9. Medical Malpractice insurance policy limit(s) is(are)
A. only the aggregate limit that it will pay for all claims.
B. only the limit that it will pay in respect to any one claim.
C. the aggregate limit that it will pay for all claims, and a maximum limit that it will pay for
any one covered claim.
D. that established by the court, with maximum exposure of (usually) $1 million.
10. Drop-Down Coverage provides
A. coverage for occurrences within the scope of the policy but in the absence of primary coverage and is subject to a high deductible.
B. that only liability that is assumed is insured under the contract.
C. broader coverage than in the underlying policy and includes coverage for mental injury,
mental anguish, shock, disability, humiliation, etc.
D. using the new standard policy provisions.
ANSWERS TO STUDY QUESTIONS
1C 2C 3C 4B 5D 6B 7B 8B 9C 10A