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Law Office Management

Feb. 2, 2015

Terms of the Art of Liability Coverage

Understand the lingo of professional liability insurance.

Once you've gotten over the necessity and the expense of buying professional liability insurance, a major stumbling block can be the terminology involved. With help from brokers who do much of their business with California lawyers, here is a glossary of terms that cause the most consternation.

admitted carrier: a licensed, admitted insurer that has agreed to file its rates (and financial statements) with the state and contribute to a state guarantee fund that will back policyholders in the event it goes bankrupt (brokers say they can't remember that happening).

Practical application: Professional liability carriers can sell their wares in California without being "admitted" in the state, but admitted carriers offer a greater sense of security. Carriers not admitted in California may have greater flexibility to insure practitioners in riskier specialties.

claims-made policy: the policy in force when a claim is first made. In contrast, an "occurrence" policy covers events within a specific period, much as the typical car or homeowners insurance policy does.

Practical application: The vast majority of professional liability coverage is under claims-made policies. That's why it's crucial to know your "prior acts date" (see below).

market: (noun) an insurance carrier or program; (transitive verb) to convey an application to carriers (as a broker).

Practical application: When your broker says she'll talk to various markets about your application, she means she'll get quotes from insurance carriers or programs. When she says she's ready to market your application, she actually means the same thing. (And when a carrier is marketing, it is telling brokers about the coverage it sells.)

pending claims: litigation or claims pending when liability coverage started.

Practical application: Any claim is potentially the responsibility of the company that insured you when the claim was made. Before any policy expires, take time to tell that carrier about any disciplinary proceedings, claims, or potential claims anyone at your firm is aware of.

prior acts date: a date before which no claims are covered (aka retroactive date).

Practical application: Whichever company insured you when a claim was first made covers it, even if the underlying actions occurred decades earlier. Most policies are limited by a prior acts or retroactive date-typically the point when the policy originally took effect, before any renewals; in those cases, your coverage applies to any new claims as long as the underlying activity occurred after the prior acts date. If you buy "full prior acts" coverage, it will likely cover any new claim, no matter when the underlying activity took place. Note: Lateral hires' earlier work elsewhere typically is excluded unless you add "career" coverage for those lawyers.

policy: the contract between the carrier and the insured outlining indemnification in the event of a claim.

Practical application: Your insurance policy is the only place to find the terms that apply to you.

program: professional liability coverage offered in a package; programs usually bear a name that's different from the underlying insurer.

Practical application: Some programs are available through more than one broker. Some programs are marketed by a single broker. The carrier underlying a program can change.


For more definitions ...

The International Risk Management Institute, an industry group, has a glossary on its website, www.irmi.com. -L.I.

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Kari Santos

Daily Journal Staff Writer

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