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Insurance PolicyThis is a starting point for law or accounting firms that are purchasing malpractice insurance for the 1st time, evaluating current coverage, or contemplating switching malpractice insurers.  If you are new to malpractice Insurance the 1st surprise is there no standard policy form.  Every insurer has a different policy form and the definitions from one insurer to another are not the same.  Just because one policy is cheaper than another, may not mean that it is a better bargain or has the same coverages.  The devil is truly in the details when it comes to procuring malpractice insurance coverage.

Things to consider:

1.       How long has the agent been in business and does the agent specialize in claims-made coverage?  Specifically how well does the agent know legal malpractice or accountant malpractice Insurance?  How long has the agent written these coverages?

2.       Does the agency have a variety of malpractice insurers to choose from?

3.       What is the AM Best rating and size of the malpractice insurer?

4.       How long has the malpractice insurer been writing professional liability insurance?

5.       Does the malpractice insurer’s claims department specialize in attorney malpractice and accountant malpractice Insurance?

6.       Does the malpractice insurer have empaneled counsel in the state?  Do you have a right to choose counsel?

7.       Does the insurer offer risk management services?

8.       Is the insurer an admitted or a non-admitted Insurance carrier?

9.       Is the policy assessable?  Some insurers have the right to assess additional premiums if the losses exceed a certain threshold.  This can be a concern with some Risk Retention Groups (RRG) and Mutual Insurance Companies

10.   If you currently have coverage, make sure that:

a.       The effective date of new coverage matches your expiration date of old coverage

b.      Your prior acts date(s) are the same or equivalent

c.       The liability insurance limits are the same or equivalent

d.      If you have Claims Expenses Outside the limits (CEOL) does the new quote offer

e.      Is the CEOL the same type

f.        If you have 1st dollar defense, does your new quote offer

g.       If current policy has aggregate deductible does the new quote offer

h.      If current policy coverage has an “owned” Title Agency endorsement does the new quote offer

11.   Are there any exclusions on the policy?   Note policy exclusions may be in the policy language other than the exclusion section or a specific endorsement may exclude coverage.    As the firm has specific knowledge that the agent may not possess about the firm, it is important that the firm thoroughly review the policy and all policy endorsements.  Some of the more common exclusions may be:

a.       The definition of damages may contain exclusions

b.      Officer and directorship exclusions

c.       Closely held entities or joint ventures may be excluded

d.      Securities or Intellectual Property work may be excluded

e.      Services such as a fiduciary under the Employee Retirement Income Security Act or 1974 (ERISA) may be excluded

f.        RICO Claims may be excluded

g.       Activities as a public official may be included, excluded or not included

h.       Employment Practices may be included, excluded or not included

i.        Cyber Liability Coverage may be included ,excluded or not included

j.        Coverage for loss of funds may be included, excluded or not included

12.   In the insuring agreement check:

a.       Is the policy a duty to defend or reimbursement policy?

b.      Is there a “consent to settle clause”?  If so, is there any penalty for withholding consent (Hammer Clause)?

c.       Are there additional coverages included, either in the insuring agreement or a separate additional coverage section such as disciplinary coverage, regulatory agencies inquiries or loss of earnings payment

13.   Does the “Named insured” on the policy include all parties that are intended to be insured by this coverage, either by endorsement or on the declarations page?

14.   Does the definition of who is ‘insured’ cover predecessor firms, past employees, partners and associates either in the body of the policy or by endorsement?

15.   Does the definition of what services are covered include all services provided by the firm?

16.   Are all locations listed on the policy?

17.   Is work done outside the firm covered? IE pro bono work.

18.   Are there any specific exclusion endorsements that list specific claims, states, entities, or persons?

19.   Are there any clauses as to who selects defense counsel?

20.   What are the arbitration clauses in the policy, if any?

21.   What are the reporting requirements and how is a claim triggered under the policy?

22.   What are the requirements for reporting changes to the firm?

23.   Is the policy a “One Way” or “Two Way” Extended Reporting Period (ERP or Tail) option?  In other words if the insured cancels coverage or chooses not to renew, does the insured still have the right to purchase Tail coverage?

24.   Is the policy an “excess” policy or “primary” insurance coverage policy?

25.   Is there “Innocent Insured” coverage?

Once you are satisfied that the coverages are equivalent, then by all means look at the cost of the insurance.

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