Please note that the answers provided here are for educational purposes only and do not define specific coverage. In all cases, coverage will be determined by the policy language.
Claims made is a term to describe a type of insurance policy, it differs from and Occurrence policy as to when a policy is triggered for coverage. The occurrence policy covers claims based on when they occurred regardless as to when they are reported to the carrier. This can cause an issue as the discovery of the loss may be years after the event, such as an asbestos claim. By the time the claim is discovered and reported the carrier may have gone out of business or the limits of the policy could be very little compared to the cost of today. Conversely, a claims made policy insures based on the date the claim is made. There are limitations in this type of policy as well. The claims made policy must extend back via a prior acts date/retro date to the date of the event in order the policy to be responsible for the claim.
First dollar defense is a term used in respect to how the deductible of a policy is appropriated. In a standard policy the deductible is chargeable against both the claims expenses associated with defending a claim, as well as the indemnity payment of a claim, if the plaintiff is successful. If a policy is issued with first dollar defense coverage, then the deductible is only applicable to any indemnity payment. This type of coverage is also called loss only. This coverage protects the insured against having a loss for a non-meritorious claim.
These terms define how the carrier will collect the deductible regarding claims that are made during the policy period. A per policy deductible states that the insured is responsible for the deductible amount only once during the policy, regardless of how many claims are made. A per claim deductible means that the deductible amount is due each an every time a claim is reported.
First of all it is important to know that the carrier always pays for claims expenses. How those expenses are allocated is the topic. If the policy is issued with claims expenses inside the limits, then the money spent to defend is subtracted from the limits that were purchased, reducing the amount of indemnity left to pay a claim if the plaintiff is successful. These types of policies are sometimes called eroding policies. The industry standard is to issue policies in this format. An insured my wish to consider upgrading their policy to have the claims expenses outside the limits. Coastal Insurors is a proponent of that upgrade to a point.
First of all it is important to know that the carrier always pays for claims expenses. How those expenses are allocated is the topic. If the policy is issued with claims expenses outside the limits, then the money spent to defend does not affect the limits that were purchased.
Carriers address this coverage in a couple of different ways, they may say the claims expense coverage is equal to the limit of liability coverage purchased or they may put a stated dollar amount on the claims expenses. Either way the money used to defend is in addition to the limit of liability until you reach the amount allotted for in the policy and then the policy converts to an eroding policy and the defense cost are subtracted from the limits purchased. While this seems like a great option for the insured, it is more expensive and it does come with a hidden cost. The upgrade is generally about 15% of the policy, but it in most cases doubles the total dollar amount of the policy coverage. Carriers generally don’t give away coverage without there being a catch. The issue is with claims expenses outside the limits the cost of the claims defense may become greater than the carrier wishes to bear given the small amount of premium increase they received. Therefore the concern is if the carrier attempts to rush to settlement in order to save money on the defense of the claim. While the carrier generally cannot settle a claim without the insured’s consent, if consent is withheld, the carrier may limit their loss to what they could have settle the claim for and any expenses above that amount would be borne by the insured.
Prior acts date is a term that is synonymous with “retro active date”, they mean the exact same thing. It is the date that carrier places on a policy to determine how far back the policy goes to insure events in the past. Each insured has a body of work that may or may not have acts, errors or omissions that they could be sued for. While the statute of limitations may bar some actions, it is important to remember that the statue does not begin until a reasonable date of discovery has occurred.
It should be noted that prior acts coverage is completely different from tail coverage. Extended Reporting Policy (tail coverage) is often confused with a prior acts date. Extended Reporting Policy is defined in our FAQs.
Tail coverage is the casual term used to replace Extended Reporting Policy (ERP). Originally insurance companies called these Extended Reporting Endorsements (ERE), but the tend has moved to ERP.
An ERP is a coverage provision stated in the policy that primarily deals with the death, disability or retirement of an insured. Since professional liability policies are issued today in a claims made form, there must be a policy in place at the time of the claim in order for there to be a policy to report it to. This then requires the insured to keep continual cover in place. If an insure has died or has become disabled or retires from the practice, it would be unreasonable to expect the estate or the retired insured to continue to purchase a policy. This is where an ERP comes into play.
An ERP allows the insured, for a one-time premium, to purchase an extension from the date of purchase into the future the ability to report claims to the last insuring carrier. Each carrier has there own terms, but in general, extensions can be purchased for one year, two years, three years, five years or unlimited. The cost of the extension is based on the last policy’s premium and then a multiplier is used based on the length of the extension, the more years of coverage the greater the multiplier.
The statute of limitations should not be the factor in how many years of extension should be considered as the statute does not begin to run until the reasonable date of discovery. Therefore, it is more important for the insured to consider the areas of practice that they worked in as some practices areas have a long length of discovery by nature.
By definition, yes there could be a difference, but in practicality, no. Most carriers define or apply the terms claim, circumstance and incident the same. This is actually for the insured’s protection.
A Notice of Acceptance (NOA) is nothing more than a term sheet from the insured, generally issued to the agent or agency hired to place insurance for the client. The NOA states the request to bind coverage at a specified limit, deductible, date and premium.
A Broker or Agent of Record Letter is a document issued by the client naming a specific agency and/or broker to represent the client in the process of finding, negotiating and placing insurance for the client. Generally when a client decides to change agents, the new agent will require a BOR to submit with the application. This is required because the insurance company will only work with the assigned agent.
Loss runs is a company term and does not refer to any type of insurance coverage. It is the name of a corporate report generated by the claims department for a particular insured. The report will be broken down by policy year and state the number of claims reported by that insured against the policy. The report will state the status as open or closed. If an open claim the report will state the amount of defense costs spent, the reserve amount set aside for additional defense costs and a reserve amount stated for the estimated amount expected to be paid in indemnity. If the claim is closed, it will list the amounts paid in expenses and indemnity if any. These reports are often requested by a competing carrier when looking to quote on new business. It is a quick glance at a potential insured’s claim history.
Split limits is a term used to express how the limits of liability are provided for a policy. The first number is the amount of coverage provided for each claim. This is the maximum amount the carrier will pay including defense costs for a single claim (please note that claims expenses may be purchased to apply outside the limits). The second amount is the amount the carrier will pay in total for all claims reported during the policy period.
Most policies today have a specific coverage for a Bar Grievance. Generally the coverage is for a stated defense amount and does not include fines, penalties or sanctions. The amount is generally not subject to a deductible.
Carriers look at Bar Grievances because they believe, in theory that it is a precursor to a potential claim and statics show that the earlier a carrier gets involved in a potential claim, the quicker it goes away and for a reduced cost to all involved. The facts are that very few Bar Grievances ever end up as a claim. This could be due to the involvement of the carrier, or the fact that most Bar Grievances are unfounded.
None the less, carriers do put an importance on the number of Bar Grievances an insured has because it goes to how the insured is perceived by their clients.
Carriers are concerned about fee disputes, because on a national average 50% of all fee disputes where the law firm sues its client for fees the client counter sues for malpractice. So some carriers may exclude coverage for malpractice cases that are a result of a fee dispute.
Carriers care because in most cases it is the first line of defense for the carrier. The engagement letter should define the terms of the working arrangement, who is the client, what services will be provided by the attorney. Many times the claim is made against the attorney for work he failed to perform. In truth it was not a service the attorney had planned on providing, but because the engagement letter was not specific about the service being provided, the attorney is at fault.
The disengagement letter is also a first line of defense. Does the client know that the work that was agreed to in an engagement letter was completed, or do they believe the attorney is still providing services. When those perceived services are not provided the client may believe that the attorney has committed malpractice.
The practice of issuing non-engagement letters is important to the carrier, because it shows that the attorney client relationship was never established and therefore a potential claim can be avoided. It is generally the opinion of the carrier that no statement in the non-engagement letter should refer to a specific statute of limitations date (but that their maybe a timing concern and that the person should seek legal council immediately) or that the individual has a legal case or a specific referral to another attorney/law firm. Referrals should be general in nature.
Most carriers require an annual renewal application be completed. The carrier wants to know if there have been any significant changes in the risk, such as changes in the attorneys insured, claims or bar grievances that have filed, changes in the firm’s areas of practice. This is done by having the insured compete a renewal form.
A few carriers offer an automatic renewal and provide a premium renewal with a signed statement from the insured that there has been no material changes from the previous year. While most consider this to be a positive, the downside is that without an application there is no way to shop those terms to see if they are competitive.
At Coastal Insurors we believe that it is important to shop our clients coverage every year (of course that is at the discretion of our clients). In an attempt to not make the renewal process more cumbersome that it already is, we encourage all of our clients to use our online application service, APPLI. This service makes competing an application extremely easy, timely and at no additional cost to our clients.
Excess and Surplus Lines (E&S) refers to how a carrier is licensed with a state insurance department, the terms non-admitted is another terms used to describe the same things. There are two primary ways a carrier is licensed, admitted or non-admitted (E&S). Admitted carriers must have their rates, policy and forms all approved by the state insurance department. A portion of every premium may be required by the department to fund insolvent carriers who leave unpaid claims. Non-admitted carriers do not have to have all of their rates, policy and forms approved. They also do not pay into the insolvency fund. It should be noted that policies issued by an E&S company are not protected by the insolvency fund should the E&S carrier go out of business.
Generally speaking E&S policies are more expensive than standard lines policies. This is primarily due to the risk exposure of the insured.