Admitted Versus Non-Admitted Carriers
Admitted carriers are protected by the state's insurance funds in case of a financial default of the insurance carrier. There are payment limits by the state fund and these are usually less than an insured's Professional Liability limits. Non-admitted carriers are not protected by these state funds.
AM Best Rating
Rating agency that provides information about the relative financial strength and claims paying ability of an insurer. http://www.ambest.com/
Claims Made Policy
Most professional liability policies are Claims Made or Claims Made and Reported. The insurance carrier that carries the current coverage is liable for the claim when the claim is reported, not when the act occurred. Versus an occurrence policy where the insurance carrier that was on the risk when the act occurred is liability for the claim regardless of when it was reported. The major importance of this is to continue to have coverage for Prior Acts in the future, an insured needs to continue to maintain a Claims Made Policy or have an Extended Reporting Period or Tail purchased to cover the acts in the past.
Limits the amount paid by the insured for deductible expenses to the amount shown no matter how many claims are initiated during the policy period.
Deductible-Loss Only/First Dollar Defense
With this option the insured only pays the deductible if there is an indemnity payment.
Defense Outside the Limits or Claims Expenses Outside the Limits
A sub-limit that will cover the costs of defending a claim without using the Limit of Liability. Once this is exhausted generally the Limit of Liability is reduced to pay for any additional defense costs.
Insurance coverage that pays once the primary insurance is exhausted. It is very important that the primary and excess policies have the same effective and expiration dates.
Defines what is not insured by this policy. You need to read this section carefully as certain policies by exclude a common area of your practice.
Extended Reporting Period (ERP) or Tail
Commonly referred to as Tail coverage, this provides coverage after a Claims Made Policy expires or is no longer in force for acts that occurred during the time a Claims Made Policy was in-force. You generally have a right to purchase this coverage (within 30 to 60 days) whenever a policy is not renewed. It does not provide any coverage for any future acts.
Following Form Policy
When one insurance carrier will not provide all of the needed insurance coverage. Other carriers may be willing to provide Excess Insurance to provide the necessary limits. A Following Form Policy uses the terms and conditions in the primary insurance policy to cover and settle losses. This helps prevent uninsured insurance exposures that might result if the policy language between the underlying coverage and the Excess Insurance are different.
This is the clause contained in many Insuring Agreements that states that even though the insurer will not settle a claim without the insured’s consent, the insurer’s exposure to the loss is limited to the amount that would have been paid if the insured had taken the insurer’s recommendation. In other words, if an insured does not accept the insurer’s recommendation, then the insured is liable for any additional costs.
Most policy exclude coverage for deliberate or criminal acts. This coverage protects the other partners or principles from the deliberate acts of another employee or partner if the others had no knowledge of the actions.
The Insuring Agreement defines what and who is covered and the responsibilities of all parties.
Limit of Liability - Aggregate
The maximum indemnity and claims expenses amount that the insurer will pay for all claims reported during the policy period
Limit of liability - Per Claim or Primary
The maximum indemnity and claim expenses that the insurer will pay for any one claim or incidents that are considered one claim.
Named Insured/Who’s Insured
This is one of the most important definitions in any policy. It defines who is an “insured” and who is considered insured. These definitions differ from one policy to the next and it is very important to read your particular policy to determine if all operations are covered as expected.
Most Professional Liability policies are annual, but some are multi-year. This is the time between the effective date and expiration date of the policy.
Acts that occurred prior to the current policy period may not be covered unless the current policy has a Prior Acts Date prior to the occurrence of the act or shows no Prior Acts Date.
Prior Acts Date or Retro Active Date
This is the date that if an act occurred prior to this date, even if it is reported during the policy period the act is not covered. It if very important to maintain your Prior Acts Date once established to prevent gaps in coverage.
Prior Acts Date - Retro Date: Inception
This generally occurs during the 1st year of a Claims Made Policy. This is when the Prior Acts Date equals the Policy Effective date. With a policy that the Prior Acts Date equals the Policy Effective Date there is no coverage for any acts that occurred prior to the effective date of the current policy even if reported during the policy period.
Prior Acts dates- Individual versus Firm (Entity) versus Career Coverage
A policy may have a Firm Prior Acts date or Individual Prior Acts dates or offer Career Coverage. One is not inherently better than another; it depends on the desire of the firm or practice and the circumstances. It is important to understand the difference:
· Firm Prior Acts: Everyone in the firm is covered by the same prior acts date.
· Individual Prior Acts: Each individual in the firm has a different prior acts date.
· Career Coverage: Regardless of the firm prior acts date each individual has coverage for all covered professional acts.
Many firms choose not to want to expose their policy to prior acts of people that join the firm or practice at a later date. Others want to offer this coverage to all professionals.
Rate guarantees for Multiple for Multiple Years
Some insureds will include a per-person or some other rate guarantee subject to certain conditions. These have almost disappeared in the past year.
Almost all insurance carriers purchase Reinsurance to cover the policies they write. With Reinsurance a primary insurance carrier is able to spread its ultimate exposure of any one loss or group of losses.
Most Claims Made Policies are Step Rated. During the first few years of a policy the exposure increases as the policy covers more and more Prior Acts. The rate tables for most carriers reflect this and over a 3 to 10 year period the policy premiums will increase as it goes through the rating step years. Once the policy becomes fully rated, then the only changes in premium should occur because of claims history of the individual or the insurance carrier; changes in the areas of practice of the professional; and/or changes in the general insurance environment.
Surplus Lines & Non-Admitted Carriers
Non-admitted or Surplus Lines insurance policies are generally sold through Surplus Lines Agents that are responsible to the state to pay the premium taxes and fees normally paid by an admitted carrier. Also the Surplus Lines Agent is the point of service should a dispute arises with the non-admitted carrier.
Warrants versus Representations
Many insurers attach a copy of the insured’s application to the policy. This makes it part of the policy and “Warrants” the statements made as being absolutely true. Representations are those made by an insured that true to the best of their knowledge. The difference can be important if an insured has not done due diligence in check with all parties in a practice to make sure that all information is properly reported.
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