The Highest Level of Professional Liability Insurance

You need to look at your practice and determine you maximum probable loss.  Much of this will depend on the type of business you conduct or the type of people that you work with.  There may also be a requirement either from a regulatory agency or a business that you do business that you purchase insurance with certain limits.

Look at the likelihood of having multiple losses in one year.  Depending on your practice you may have frequency as well as severity issues to cover.  If you feel that there is a high likelihood of having multiple claims in a year, make sure that your aggregate limit is high enough to cover these multiple occurrences.

First look at what you can afford to come up with unexpectedly.  In generally the higher the deductible you purchase the lower the insurance cost.  But because of how insurance carriers give deductible credits, you may find out that going to the next highest deductible is not a financially sound decision.  Take the difference in deductibles and divide by the difference in the cost of the deductibles.  This will determine your deductible payback. Here is an example:

Liability Limit	Deductible	Premium
$100/$300	$5,000	$3,000
$100/$300	$10,000	$2,000

Difference is deductibles:    10,000-5,000=5000

Difference in premium:       3,000-2,000=1000

5000/1000              =               5 Year pay back for deducible

If you think that probability of having a claim in less than 5 years is high purchase the lower deductible.  If you think that it is low, purchase the higher deductible.    

What about Claims Expenses Outside the limits?   Generally the reason that you want to purchase claims expenses outside the limits is to prevent the “Burning” of your liability limit.  Professional Liability Insurance defense costs are generally part of the liability limit, so the more it costs to defend a claim; the less is left to settle the claim.  As you are being defended you “burn” through your liability limit.

Understand that Claims Expenses Outside the Limits is not an unlimited coverage.  It is generally limited to either you limit of liability or some other lower sub-limit.  Normally Claims Expenses Outside the Limits is capped at no more than $1,000,000.  In the current insurance market environment this coverage is more difficult to get. If you are concerned about this and do not think your underlying coverage is enough, the other alternative to Claims Expenses Outside the Limits is to get a higher per claim liability limit.

What about 1^st Dollar Defense or a Loss Only Deductible?  Two years ago, companies were giving this coverage away almost for free, but now it is getting increasingly difficult to obtain this coverage.  This only helps if there are claims expenses (defense costs) only and no indemnity payments.  If there is an indemnity payment made you are still liable for the deducible.   It generally makes more sense to see if you can get this coverage if you are carrying a high deducible.  Otherwise, if you are uncomfortable with the deductible being carried, see what the cost of getting a lower deductible would be.

There are a host of different sub-limits and add on coverages, one of the most common is defense coverage provided for disciplinary proceedings.  It pays for the defense but not for the fine.

Another is reimbursement expense for you or an employee for the time you spend in helping defend a claim.

While it is usually not wise to “shop” your insurance every year, but people that do shop their insurance generally pay between 10 to 20% less for their insurance then a comparable insured that has not shopped for a number of years.  So if you have seen increases in your insurance costs or have not look at other companies in awhile, you could be paying 10 to 20% too much for your insurance.  Unlike personal lines insurance, insurance carriers for Professional Liability Insurance have some discretion in the rate being charge for each individual insured.

For almost 10 years the price of professional liability insurance declined steadily as many insurance carriers entered the professional liability market place and attempted to gain market share.  Reinsurance rates were generally very cheap and easy to obtain.  Approximately 2 years ago, this trend started to change.  Certain insureds with specific areas of practice or insureds with claims were starting to find insurance costs going up or not being able to find coverage.  The tightening insurance market had already started prior to September 11^th.  After September 11^th, the insurance markets started to tighten even faster.

Only one insurer that I know of does not purchase reinsurance (State Farm) because they are so large.  All of the others to spread the risk of insuring everything purchase reinsurance.  Most reinsurance treaties are annual.  As the reinsures absorb the losses for 9/11 and paid the cost for the cheap reinsurance rates and liberal underwriting of the past, they past on increases to the primary insurance carriers.  The primary insurance carriers have then passed these costs and heightened underwriting standards along to the ultimate consumer, you.

If the declines in the stock market continue through the end of the year, expect another round of price increases and further tightening of the insurance market place as insurance carriers investment portfolios which are counted on to cover some of the costs of insurance have all declined.

One is to shop your policy with competitors and see if you can save some money.  If you do not wish to shop, or even if you shop and cannot find a better deal, look at higher deductibles, eliminating add-ons like 1^st Dollar Defense.  Resist the temptation to lower your limits.  Remember that even if your practice has changed, if you lower your limits, a claim occurred a number of years ago that is reported or made in the current policy year will be settled with the current policy limits and policy terms.  A higher deductible payment might “hurt” but an underinsured loss may expose your personal assets.

It is good practice at each renewal to inquire with all partners, principals and employees to make sure that they are not aware of any circumstances that could lead to a malpractice claim.  If they are it should be reported to your current carrier, even if you do not change carriers.  The same holds true if you are switching carriers, because even if you do not switch carriers, failure to make a timely report of a claim can cause a claim to be denied.

Questions?

Malpractice claims frequency tends to go up when the economy is not doing well.  The number of errors or problems did not increase but more business deals go bad and people are looking for ways to become whole again.  The problems were already there, but in a declining economy more of the problems come to light.

One of the most important insurance benefits is having the insurance carrier pick up the defense costs and find outside counsel to represent you.  Many carriers have claim “Hot Lines” to let you discuss an incident prior to it becoming a claim.  And if a claim is filed insurance carriers have pre-selected attorneys that specializes in handling malpractice claims to represent you and if nothing else give you piece of mind that when a problem occurs you are not all alone.

In addition, when it comes time to pay for an error (actual or perceived), the carrier will step to pay for the problem if needed, without you jeopardizing your personal assets.

It does not cover slips and falls in an office, destroyed property, advertising injury, or other types of general liability claims.  Sometimes there are add-on endorsements to provide some additional coverage for these incidents but these are best covered by your general liability or business-owners policy.

It also does not cover employment practices claims against you, such as wrongful termination, wrongful dismissal or sexual harassment charges.  These are best covered by an Employment Practices Liability policy.

Professional Liability Insurance protects for errors and omissions committed by you, your partners or your employees in the course of their professional duties where you become or could become legally liable.  For example it would cover missed filing deadlines; medical, legal or accounting procedures/engagements that the outcome was less than what was hoped for; or errors made in interpreting the law or applying a statute.  It does not provide as a rule general liability insurance or property insurance coverage.

With few exceptions, most commercial and business owners policies exclude coverage for professional acts.  No matter how careful you are you are errors (either actual or perceived) do occur.

Frequently Asked Questions

The following information is provided as general information, it is not intended nor does it replace a thorough understanding of your own policy or super cede the specific language of any policy.  Also remember that Professional Liability policies are not standard, each differs. The terms and definitions presented here may be different from what is contained in a specific policy.

Overall:

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