Ch. 16 - Professional Liability E&O

Professional Liability (E&O)

• Professionals need Professional Liability AND CGL.

• CGL covers negligence, and the E&O is wrongful acts that are not necessarily negligent.

• Errors & Omissions insurance is also called Professional Liability Insurance, Malpractice Insurance, but is most commonly referred to as E&O Insurance.

pg. 2

Groups that typically purchase E&O coverage

pg. 2

• Accountants,

• Architects,

• Attorneys,

• Stockbrokers,

• Engineers,

• Barbers and beauticians,

• Real estate agents,

• Insurance agents, and

• Much of the medical community including physicians, pharmacists, and veterinarians.

Don’t need E&O:

• While most blue collar type folks can get by with only a CGL, many white collar folks need both the CGL and the E&O. People such as electricians, plumbers, and carpenters are fully covered by the CGL and have no need for E&O coverage.

Standard of Care

pg. 3

Not only are professionals liable for negligence, they are also liable for wrongful acts – acts which cause harm but which may not necessarily involve negligence. The standard of care expected of professionals is higher.

Professional Liability Insurance covers only unintentional acts. It does not cover:

• Fraudulent acts;

• Criminal acts;

• Punitive (exemplary) damages; or

• Government fines.

Insured’s Consent to Settle Provision

pg. 3

• The Insured’s consent to settle is required because an out-of-court settlement could damage the Insured’s reputation.

Occurrence vs. Claims-Made Forms

pg. 3-4

• Today, almost all E&O policies are written on a Claims-Made Basis. The policy in effect at the time the claim is filed will pay.

• Under a policy written on a Claims-Made Basis, the filing of the claim (not the actual occurrence) triggers the current Insurer’s liability.

• So, which policies are almost always written on a Claims-Made Basis with a Consent to Settle Provision? You guessed it – E&O.

Extended Reporting Periods: Basic ERP - Mini-tail

pg. 5

• When a Claims-Made form E&O policy expires, the window of opportunity for filing a detailed claim always continues for another 60 days. This Basic Extended Reporting Period is known as the Mini-Tail Extended Reporting Period.

Extended Reporting Periods: Basic ERP - Midi-tail

pg. 5

• The Basic ERP Midi-Tail Reporting Period goes one step further by allowing 5 years to file a detailed claim if the approximate nature of the issue is reported within 60 days after the end of the policy expires.

Supplemental Extended Reporting Period

pg. 6

• A Supplemental ERP extends the reporting period forever. The Supplemental ERP is also known as a Maxi-Tail ERP.

• A doc who decides to retire is the prime candidate for the Supplemental ERP.

ERP Summary

pg. 6

For the claim to be covered, the injured person must:

• File a detailed claim within 60 days after the policy expired (under the Basic ERP’s Mini-Tail Provision); or

• Merely report the potential of a claim within 60 days after the policy expired, but the detailed claim must then be filed within five years after the policy expired (under the Basic ERP’s Midi-Tail Provision).

• If the Insured had a Supplemental Extended Reporting Period Endorsement, the time for reporting a claim goes on indefinitely.

Retroactive Date

pg. 6-7

• E&O policies usually contain a Retroactive Date, a date before which today’s policy will refuse to pay claims.

• The farther back the Retroactive Date, the more expensive the policy

An E&O policy will pay a claim if:

• 1. The wrongful act occurred after the Retroactive Date, AND

• 2. The claim is filed before the end of the Extended Reporting Period (ERP).

Directors and Officers Liability Insurance

pg. 7-8

• Although a CGL may be in place, it provides no protection for a director or officer sued by a shareholder for alleged mismanagement. To the rescue comes Directors & Officers Liability Insurance, also known as D&O insurance.

Medical Malpractice Insurance

pg. 8

Written on claims made basis, have an ERP, and they do have a consent to settlement requirement.