Claims-Made Insurance: What you need to know
by Scott Andrews,
HUB International Northwest, LLC
Professional liability insurance policies (Errors & Omissions, Cyber, and Directors & Officers Liability) are all typically written on a Claims-Made basis. With auto or general liability policies you know when the accident occurred, so it is easy to pin the date down, thus they are “occurrence” policies. But professional liability policies usually cover a long-term professional relationship and professional advice given at one point can often be corrected later, or defining when advice should have been given is usually fruitless, so Professional liability policies use the date that the claim is made against you. This creates some issues such as “What is a Claim”; “Who was it served on”; “When was the work or representation of the client done that leads to the Claim”; and “When did you notify the insurer of the claim”? These are all relevant, and since there is no standard policy form for professional liability you must be aware of how your particular policy defines and addresses each of these considerations.
- A “Claim” can be legal service of a summons and complaint, a written demand for money, a verbal accusation and demand for compensating service, or even just an awareness on the part of any insured that a professional breach has occurred, triggering your obligation to so advise your client. The latter would generally not be a “Claim” per se but would create a duty to inform your insurer nevertheless.
- Since employees are generally insured under professional liability policies, a demand letter received by a Paralegal could meet the definition of “Claim” even though the Managing Partner may be unaware, thus the clock for timely reporting to the insurer can be triggered. You need to know how your policy addresses that and have an internal process for reporting up the chain of command.
- A unique feature of Claims Made policies is that you did the work some time ago yet the policy in force when the Claim is made against the insured is the policy that covers the claim. However, policies have a 2nd important trigger date. They all have a Retroactive Date, or “Retro” date. The actual work leading to the claim must have been done subsequent to that retro date. This is all-important and requires careful review of the initial date of the Firm’s inception, or insured Predecessor Firms, as well as any individual dates of hire of insured individuals.
- Some policies are written to cover Claims made during the policy term, while others cover only claims that are “Made and Reported”. They also require that you report, either as soon as you become aware, or no later than within the policy term, any incident of which you are aware that could reasonably be expected to lead to a claim. An otherwise valid claim can be denied if not timely reported under the policy’s terms.
As you can see, there is a level of complexity in dealing with your Professional Liability Policy that requires careful understanding to ensure that the anticipated coverage meets the firm’s exposures. If you have any questions please contact HUB’s Professional Liability Practice Co-Leaders: