This is a common question as to what the Innocent Insured Clause does? It is easy to misunderstand the meaning and intent of this clause in a policy.
Deliberate or illegal acts are normally not insurable either by rule of law or the insurance language. But what happens to the insurance coverage when a firm member commits an act that is clearly illegal or deliberate and thereby excluded from coverage. This ‘deliberate’ act may cause there to be a malpractice claim that coverage is then denied. But is it fair to the rest of a firm, if they did not know or participate in the excluded act to not have attorney malpractice coverage for this incident?
The Innocent Insured Clause in a policy is intended to provide coverage for the ‘innocent’ parties that are members of the firm so that they are not left without insurance protection. As each malpractice insurance policy is different, this ‘clause’ may differ in wording and may not be called an Innocent Insured Clause, while the intent remains the same.
The current AXIS Lawyers Professional Liability Insurance policy is just one such policy. The ‘Innocent Insured Clause’ is buried as part of the deliberate acts exclusions:
“4. Fraudulent, Criminal, Malicious, Deliberately Wrongful Acts, or Omissions. This policy does not
apply to any claim based upon or arising out of any dishonest, fraudulent, criminal, malicious or deliberately wrongful acts or omissions committed by you.
This exclusion shall not apply to a claim until and unless such conduct is evidenced by any judgment, final adjudication, alternate dispute resolution proceeding or written admission by you.
This exclusion does not apply to those of you who did not personally commit, personally participate in committing, or remain passive after learning about one or more of the acts or omissions described in this exclusion. However, our obligation to provide coverage in any such case shall be excess of the deductible and excess of the full extent of any assets in the named insured, or monetary value attributed to such assets, of anyone to whom this exclusion applies.
This exclusion shall not apply to claims alleging personal injury.”
A further caution, while the Innocent Insured Clause is a very common clause in many professional liability insurance policies it is not found in all policies. This a policy feature that is litigated often. If you have concerns about this clause, check with an experienced professional liability insurance agent.
Note: The above is general information about a Claims Made Insurance policy concept. Different insurance policies and different situations may or may not treat these concepts in a similar manner.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
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