Like all professionals, a significant expense in your annual budget is for professional liability insurance premiums.  Despite this, many firms often do not make good use of the coverage that they have purchased and paid for or –  even worse – jeopardize that coverage by failing to provide timely notice of potential claims.

Assume for example, that your firm is working on the design of a large commercial project.  Throughout three years of construction, issues arose with water intrusion that were discussed at various project meetings because the water had caused damage to other parts of the project that had already been constructed.  The contractor contended that the water intrusion was caused by the design of the roofing system.  Your firm provided additional details for the roofing system which did not prove wholly successful.

After substantial completion, the building owner moved a number of tenants into the building.  There were constant complaints about water issues in the building.  Your firm attended numerous meetings with the owner and contractor, received many emails about issues, and again provided more details for the roofing system, only partially implemented by the contractor.  After several years of this, the owner got fed up and sued your company and the contractor.  After you were served with the lawsuit, you tendered it to your insurance broker who submitted it to your professional liability carrier.  Your professional liability carrier asked for a copy of all of the correspondence relating to the issue.

You were shocked when you received a letter from your carrier denying coverage. Where did you go wrong?

Understand Claims Made Coverage

You need to understand Claims Made coverage.  Professional liability insurance policies are different than general liability policies because they cover claims that are MADE during the policy period.  Coverage is triggered by the date you first became aware and notify the insurer of a claim or potential claim.  It is essential that you recognize when a claim or potential claim is being made so that you can timely report the claim to your insurance carrier.   Most policies also exclude coverage for claims which the insured knew about before the beginning of the policy period.

When Should We Report a Claim?

Certainly, a lawsuit is a claim to be reported.  A communication from a claimant expressing an intent to seek damages or hold you responsible is also a claim.  A request that your company enter into a tolling agreement is also likely a claim.  When in any doubt, report the situation to your broker.

Take advantage of Loss Prevention Programs

Many quality insurers have loss prevention programs.  Before you select a carrier, make sure that the carrier you pick has a quality loss prevention program.  A loss prevention program is worth additional premium dollars.  They will provide your company with advice about issues that might not turn into a claim, but which are keeping you up at night.  Under these programs, the loss prevention matter is not part of your claims history.  In fact, insurers look favorably upon firms that report potential issues promptly because they know that you are on top of risk management. 

Report anything that is or might turn into a claim.  Your insurance carrier needs to be an early part of the best strategy to resolve claims.  You are paying a premium so make good use of your policy.

Insurance Questions? If you need legal advice concerning professional liability insurance, please contact the attorneys of Gibbes Burton, LLC at (864) 327-5000.