Professional Liability Insurance (PLI) is generally sold as claims-made coverage—a unique type of time-limited coverage primarily for professionals.
Typical examples of PLI coverage include:
•Legal malpractice for attorneys;
•Medical malpractice for physicians;
•Employer Practices Liability Insurance (EPLI);
•Directors and officers (of corporations) liability insurance;
•Media liability insurance;
•Brokers’ errors and omissions insurance; and
•Cyber-liability, technology errors, and omissions insurance coverage (this product is new).
Insurance companies can price claims-made policies more competitively because there is a defined time period that they are on the risk (responsibility to cover a claim). Professionals need to know when to report those claims to the insurance company.
The general rule is that claims against the professional (the insured) must be made during the policy period to be covered, which is typically a one-year period.
Depending on the language of the policy, if the claim was not made against the professional during the policy period, the claim will not be covered.
In addition, the claim typically must be reported to the insurance company by the person or company that is the contracting party or holds the policy — the insured. This rule protects the insured from claims that they are not required to report as professionals. Moreover, it limits the scope and cost of the policy by reducing the time that the insurance company would need to investigate claims reported by non-policy holders.
For example, if a lawyer who has claims-made insurance makes an error and his client files a claim for that error, the insurance company will question when the client made the claim (as opposed to when the incident occurred). If the client made the claim against the lawyer, but the lawyer or law firm failed to alert the insurance company, they are at serious risk of not having coverage.
Next, if a claim is made during the period when the policy is in force, the insured professional must read the policy to know whether the claim must also be reported to the insurance company during the policy period. Such an insurance policy is known as a claims made and reported policy, as opposed to just a claims made policy.
In a future blog, I will discuss how the word “Claim” is defined in these policies and how the courts further define it.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack