A professional is defined as one who possesses special knowledge and skill necessary to render a professional service. Knowledge and skill are a combination of a person’s education and experience in a particular vocation or branch of learning.
Under the law some who are recognized as professionals include physicians, surgeons, dentists, attorneys, engineers, accountants, architects, insurance agents and brokers. By law, a professional is bound to perform the services for which they are hired and to perform these services in accordance with the appropriate standards of conduct. The first duty is one of a contractual nature and the second arises from the principles of tort.
When a client hires a professional to perform a particular service, a contractual arrangement is created. A contract is a promise or set of promises which the law recognizes as a duty and the law provides a remedy should this duty be breached. The acceptance of such a contract occurs when the professional indicates a willingness to perform a service or actually performs the required act.
Once a performance is agreed to, a professional may only be relieved of his or her duty to perform if (1) there is a failure on the part of the person who is requesting the performance to offer consideration such as a payment for the services rendered or (2) if it impossible to complete the performance or (3) if the contract is representative of fraud, misrepresentation, mistake or is illegal.
If a professional has failed to perform as promised and the contract is breached, an injured party is entitled to be placed as nearly as practical in the position he or she would have occupied had the contract been performed as promised. This usually results in monetary or compensatory damages, but there may also be consequential damages as a result of the breach such as a future loss of income.
In all cases a higher standard is required of a professional. Each employee, officer or director of a professional corporation is personally liable for his or her own actions. A professional corporation shall have no greater liability for the conduct of its agents than a general business corporation. However, some states require a professional corporation to purchase insurance for certain minimum limits of errors and omissions which may arise out of the rendering or failure to render a professional service.
Although my review of the various professional liability products will list the ultimate coverage points, please understand that errors and omissions policies often differ from each other greatly. There may be differences on how a “wrongful act” is defined and who is covered by the policy.
There are variations in whether and how prior acts coverage is provided and the availability, length and cost of the extended reporting period.
Some of the policies pay on your behalf while others will indemnify you for loses you pay yourself. Some policies include defense within the limit, some allow for defense to be purchased outside the limit and some include defense outside the limit automatically.
It is difficult to compare policies without actually looking at specimen copies of the policy proposed. It is suggested that you view specimen policies or request them at the time coverage is proposed. If your current policy is broader, or provides the coverages for which you are comfortable, consider reviewing the differences in that which is offered from that which you currently have. Do not consider price alone.
If your agent recommends a specific policy over other policies, make certain the agent provides those recommendations in writing. In most cases, because of the liability imposed upon an agent for making an error or omission himself or herself, no agent will provide such recommendations in writing unless there are a number of disclaimers listed in the policy.
Ultimately, you are the one to choose the policy coverage you require. And make certain that you may have prior acts coverage and prior and pending litigation which goes back to the date coverage was initially started, because coverage is provided on a claims-made basis. And as I have mentioned previously, make certain you are aware of the extended reporting form and the cost of the extended reporting tail must be provided up front.
Errors and omissions are not covered under a general liability policy. Typically for coverage to be provided under a general liability policy, an occurrence would have to happen. This means an accident and continuous and repeated exposure to the same damages which were not expected or intended. After an occurrence has happened, the general liability policy covers only property damage, bodily injury and personal and advertising injury.
Under an errors and omissions policy, the damages are in a form other than bodily injury or property damage. The damages instead would be more likely loss of wages or profits. An errors and omissions policy typically defines the kind of event it covers in broad terms. The errors and omissions aka professional liability aka malpractice liability also covers damages other than bodily injury, property damage or personal injury and usually covers wrongful acts, which in itself has various definitions.
Up to this point, you have reviewed the types of coverage which are included under the general liability policy, as well as the exclusions. This information may assist you in determining the additional exposures your business may have and recognize the additional coverage you may require because of professional errors and omissions.
Few Admitted Insurers write professional errors and omissions coverage and if a non-admitted insurer writes the coverage, please note that 25% – 35% of the premium may be earned at inception. And, with respect to the Extended Reporting form, 100% is earned immediately for the duration of the reporting tail.
Karin for the blog