If you’re opening a new practice, just getting around to buying professional liability insurance, or shopping for a better policy, asking the right questions is critical to getting the best protection and value. Before you sign up, be sure to know the answers to these questions.
What terms apply to the deductible?
In addition to understanding the amount of the deductible, it’s important to understand exactly how it will be applied. For example, say your deductible is $10,000. A claim is filed against you, and you end up paying that $10,000 for its resolution. If a second claim is filed in the same policy year, will you have to cover the deductible on that one as well? What if several claims are filed in the same year? Is there any limit to your potential losses?
To understand these aspects of the policy, be sure to ask,
- Does a new deductible apply if more than one claim is filed in a year?
- If a new deductible applies to subsequent claims, is there a dollar limit on the total amount of deductible that can be charged in a year?
How are defense costs treated?
This is a critical distinction among policies that should be reflected a plan’s premium costs. Under some policies, the insured attorney begins paying the deductible with the first dollar spent defending against a claim. Because these defense costs can be substantial—even if the claim never reaches a settlement or judgment stage—policies that require payment of the deductible only after settlement or judgment provide the greatest protection.
Another question is whether defense costs are “inside” or “outside” the liability limit. If they’re inside, that means the costs that the insurer pays defending the claim erodes the funds available for payment of a settlement or judgment. On the other hand, defense costs outside the limit are covered by separate limits, leaving your limits for payments to the plaintiff intact.
Be sure to ask,
- Are defense costs included in the deductible?
- Will the policy pay to defend against ethics complaints or disciplinary proceedings in addition to lawsuits?
- Are defense costs inside or outside the limit?
Do you have any say in who defends claims against you?
While you’re unlikely to find a policy that allows you to choose any malpractice attorney you wish, some will allow you to choose among a panel of attorneys rather than requiring you to work with whomever they assign. In either case, it’s a good idea to find out who your potential defenders would be in the event your malpractice insurance kicks in to provide you with counsel. Ask,
- Do I have any choice in who defends claims against me?
- Who are the attorneys who could be assigned to my case?
Will there be gaps in your coverage?
If you’re changing insurers, be sure that you have a combination of tail coverage and prior acts coverage that provides you continuous protection. At the same time, avoid paying for extra coverage that you don’t need. Be sure to understand what will be covered by your previous policy and what will be covered by the new one. If you’re not sure whether a gap or excess coverage would result, be sure to clarify this with your insurance agent. Ask,
- Will any prior acts be covered by the new policy?
- What tail coverage does my existing policy provide?
- Is there a gap or unnecessary overlap in these coverage periods?
Why and how can the insurer cancel your policy?
Just about everyone misses a payment date from time to time. If your policy allows your insurer to cancel immediately and without notice when the check doesn’t make it to their office by the due date, you could be vulnerable to tremendous losses. Be sure to check the contract language to see what kind of grace period it allows for payments and what kind of notice requirements it imposes on the insurer before cancellation. Make sure you know the answers to these questions:
- When are payments due?
- Is there a grace period before they are considered late?
- How much time passes between a missed due date and policy cancellation?
- What notice will I receive before the policy is canceled?
When you shop for errors and omissions insurance, asking the right questions can help you find the best value, protecting your firm and your budget.