Professional Liability Insurance Contract Compliance, by Andrew J. Kelly, RPLU
Changes to a professional liability insurance policy are inevitable. Whenever a change is requested, I always ask the agent if the reason for the requested change is due to a new contract requirement. It is important the insured understand the cost and coverage implications of any new contractual requirement.
The first concern that should be addressed is whether the professional services being offered in the contract are in line with what is already covered by the policy. Making an assumption that any new services are automatically covered is a mistake that should be avoided at all costs. Any new services that were not disclosed to the insurance company in the original application must be underwritten and approved by the underwriter before they are provided to their clients.
A higher limit of liability can often be offered if required by contract. The insured can attempt to negotiate the limit requirement down to a more manageable level when by presenting the costs associated with the higher limit request during contract negotiations. If the primary carrier’s higher limit is cost prohibitive, an excess policy can be pursued for a cost savings when time permits.
The agent and broker should always make a list of the requirements made of the professional liability policy by a new contract. Common requests often include additional insured, primary and non contributory, and waiver of subrogation language amendments. Each request has consequences to the coverage if endorsed onto the policy.
An additional insured endorsement functions to mitigate the exposure of the insured’s client for something the insured does that could cause the client a loss due to their vicarious liability exposure. Most professional liability policies have an insured vs. insured exclusion in them which excludes claims brought by one insured against another insured. When an additional insured is added to a professional liability policy, the agent must explain that the insured’s client will no longer be able to sue the insured under the professional liability policy since they are now technically an insured. An insured vs. insured carve back is sometimes available, and will prevent the insured vs. insured exclusion from applying in the event of a claim brought by the additional insured.
Primary and noncontributory language is essentially an amendment to the policy that requires it to pay first without any assistance from another applicable policy. When multiple parties are named in a suit it is the responsibility of both parties to tender a notice of a potential loss to their insurance carriers in a timely manner. Under normal circumstances the claim adjusters of both insurance companies would negotiate what percentage of the claim each would pay depending on how allegations of the claim are brought by the plaintiff. Having primary and non contributory language attached to a policy circumvents that process and places the responsibility to pay squarely on the policy that contains the provision.
A waiver of subrogation amendment precludes an insurance company from going after a third party that caused a loss on the insured’s policy. Additional insured and primary and non contributory changes can create additional liability for the insurance carrier. It is common to see waivers of subrogation endorsements attached to these requests so that the insured’s insurance company cannot come back and look for indemnification from the party that caused the loss once the claim is settled.
Getting an insurance carrier to agree to a waiver of subrogation and primary and noncontributory wording may not be readily available in some circumstances because of the additional risk it creates for the insurance company. The insured can request that the changes to the contract only apply to the party requesting the amendments to try and appease the underwriter if they decline to offer a blanket endorsement. When all else fails, it may make sense for the insured to try and negotiate one or both of the provisions out of the contract when the number of insurance companies available for the risk is limited by the contract requirements.
Getting a copy of the contract makes sense even in circumstances where no major amendments to the policy are required. Any changes made to a professional liability policy because of new contract should be explained and addressed before the contract is executed.
Andrew J.Kelly, RPLU
Vice President
Alexander J. Wayne & Associates, Inc.
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