Finance 431

Professional Liability

Professional Liability

Historically only covered liability from Professional Services to others Medical malpractice

Doctors Errors and Omissions

Accountants Lawyers Engineers and Architects

Professional Liability

Today, more widely considered for a number of organizations Directors and Officers liability Fiduciary liability Employment practices

Professional Liability

Loss exposures

Occurrence v Claims made

Settlement conditions

Defense costs

Deductibles and self insured retentions

Other factors

Professional Liability

Loss Exposures CGL excludes most professional liability loss

exposures Focus is on professional services exposures not

on same type of exposures as CGL Not focused on premises or bodily injury or

property damage Unique exposures and underwriting considerations Generally written by companies well experienced in

the business- a real specialty business

Professional Liability

Occurrence v Claims Made Coverage Professional Liability frequently written on

claims made basis Losses tend to be large Infrequent Often difficult to know if premium is adequate

May pay claims years after receipt of premium

Professional Liability

Claims made coverage What does that mean ?

Professional Liability

Claims made coverage …covers liability claims that are made or submitted during the policy period for covered events that occur on or after a retroactive date and before the end of the policy period. Helps to know claims for any given year Can provide extensions to time period for the

insured

Professional Liability

Settlement Conditions Underwriters want the right to settle out of

court without the consent of the insured May or may not have that right in policy

Professional Liability

Defense Costs May be paid in addition to policy limit May have significant impact on max loss if

separate

Professional Liability

Deductibles and self insured retentions Large deductibles are common Self insured retentions common

$ 10,000 plus Participation in loss provides incentive for

prevention

Professional Liability

Other factors Social and legal trends real factors

Corporate scandals Wall Street Accountants

Litigation growth Economic issues Industry issues

Medical malpractice Merger and acquisition

Employment practices liability

Professional Liability

Directors and officers liability-insurance and indemnification Indemnification

D & Os are reimbursed by corporations for Legal costs Settlements Judgments Fines

Professional Liability

Directors and Officers Liability-legal background Liability to shareholders under state

incorporation laws Duty of care

Make informed decisions Business Judgment Rule

Duty of loyalty Ensure decisions are in the best interests of all

shareholders when a conflict exists

Professional Liability

Directors and officers liability-legal background Liability to shareholders under securities laws

( federal and state) Disclose material information in timely manner

Types of suits Derivative – on behalf of corporation Direct actions-on plaintiffs’ behalf

Individual Class

Professional Liability

Directors and officers liability D& O insurance covers

Losses not indemnified by corporation Indemnified losses paid by corporation Common exclusions

Illegal personal profit Willful misconduct

Professional Liability

Directors and officers liability Incentives to settle securities class actions

Merit of securities class actions

Professional Liability

Fiduciary liability Employee Retirement Income Security Act of

1974(ERISA) Fiduciary liability to pension plan beneficiaries Individuals responsible for investment, control or

disposition of assets held by plan May be held responsible for errors and omissions of

outside entities that provide admin and related services

Professional Liability

Fiduciary liability Fiduciary liability insurance

Covers legal liability including defense costs Generally written as stand alone

Other related coverages Fidelity and Surety bonds Employee Benefit Liability (EBL) Insurance

Professional Liability

Employment practices liability Mergers and acquisitions Experiences in dealing with disgruntled

employees

Professional Liability

Personal experiences D & O

Board of directors Concerns Exposures Coverage availability

Agents E & O Metropolitan v rural areas

Accountants E & O Metropolitan v rural Large audit client v smaller business Audit work v tax practice

Professional Liability

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