Insurance for ‘Human’ Professionals

Professional liability insurance is a complex and interesting concept. As insurance professionals, or practitioners if you prefer, we are used to the concepts and terms of several different liability policies. We understand that an auto liability policy pays for bodily injury and property damage related to automobile accidents. We get that a general liability policy pays for bodily injury, property damage, and personal and advertising injury related to business exposures (premises, operations, products, etc.).

But what about professional liability policies? They aren’t concerned with bodily injury, property damage, or personal and advertising injury. They aren’t concerned about an auto accident.

Allow me to quote one professional liability policy that I read.

We will pay on behalf of the “insured” for “professional loss” in excess of the deductible that the “insured” becomes legally obligated to pay as a result of a “claim” caused by an actual or alleged negligent act, error or omission in the performance of “your professional services”…

Without digging all through the whole policy, there are two sets of terms that we need to deal with: “professional loss” (defined in the policy) and negligent acts, errors or omissions (not defined in the policy).

Since it’s defined for us, let’s look first at “professional loss.”

Professional Loss

Professional loss means: 1. A monetary judgment, aware or settlement of compensatory damages;

This makes sense to us because we deal with compensatory damages in other liability lines. Compensatory damages are meant to compensate someone for injuries that happen. In this case, those injuries are tied to some sort of professional service. What’s a professional service? Let’s come back to that.

Professional loss means: 2. Only where insurance coverage is allowable by law for: civil fines and penalties assessed against a third party other than the insured for which the insured is legally liable; civil fines and penalties assessed against the insured; and punitive, exemplary or multiplied damages for which the insured is legally liable

This is a little different than we’re used to because we don’t think about exemplary or punitive damages as being insurable. In several states, they are not insurable. That’s why this policy provides some limited coverage for these items. Punitive and exemplary damages are exactly what they sound like. They are damages awarded by the court to punish someone for wrongdoing or to make an example of someone because of their wrongdoing.

This isn’t about whether or not they should be insurable, just whether or not they are. There’s one more part of this definition.

Professional loss means: 3. “Defense expense” associated with Subsections 1 and 2 of this definition.

The final piece of the definition of a professional loss on this policy includes the costs associated with defending the claim or suit. This reminds us that the limits on some policies don’t just provide money for indemnity payments, but they can also include money for the costs associated with defending the claim.

Balancing Act

The end result of all this becomes a balancing act between the cost to defend the suit and the ability to pay the final indemnity award or settlement value. It’s something the insured needs to be aware of before anything happens.

The other part of that definition includes some words that are not defined in the policy.

• Negligent act: the failure of a reasonable person to act with the care due to the situation that causes someone an injury. In the realm of professional liability, it’s the failure of a professional to act with the care due to the situation.
• Error: a mistake that causes someone an injury. It could be that the professional provided the wrong advice to their client.
• Omission: something got left out that causes someone an injury. This is where the professional fails to do something that they ought to do.

So let’s get back to the coverage. What are we providing coverage for on this professional liability policy? If we could sum it all up in a very short sentence, it would be this:

This is insurance for human professionals that are sometimes human.

People make mistakes, and that includes professionals. These policies are going to have exclusions against intentional acts or illegal acts. They will have exclusions against unlicensed practice of the profession and other exclusions.

Remember that these are the policies that cover the potential negligence, errors, and omissions of several different kinds of professionals: insurance agents, doctors, lawyers, architects, pharmacists and more. Because of the wide range of different professions, the policies will all read differently. So dig out the policy and read it to find all of the conditions, exclusions, and other language for that particular policy. I didn’t even mention that the occurrence policy that I read didn’t include defense costs within the limit, but the claims-made policy did. Come to think of it, I didn’t even deal with occurrence and claims-made policies. Next time.