Miscellaneous Professional Liability Insurance

Doctors and lawyers have long been regarded as “professionals” by our society, due to their special technical skills, education, and practical experience. The nature of their work is such that the public has a high level of trust and expected proficiency of these practitioners.

But professional liability insurance is not only for doctors and lawyers anymore! In prior decades, the definition of a “professional” expanded to include a number of other occupations in which special knowledge, skills, and close client relationships are paramount. Examples of these are accountants, architects, bankers, clergy, engineers, insurance agents, and stockbrokers. More recently, this list has expanded even more. This trend parallels the transformation of American business from a manufacturing-based economy to a service-oriented economy, and now more and more occupations are regarded as professional occupations.

With the well publicized nature of our litigious society, coupled with the expanded base of service businesses, the companies and staff in the service economy are subject to greater exposure to malpractice claims than ever before. Indeed, not only physicians and attorneys are being sued by their clients for malpractice — many other professionals are now at risk!

A complete roster of the “new” professionals is beyond the scope of this discussion. However, a representative list of service businesses and occupations that fit the current definition follows:

Advertising Agencies Collection Agencies
Computer Consultants Credit Bureaus
EDP Companies Employment Agencies
Environmental Consultants Financial Planners
Health Clubs Home Inspection Companies
Interior Decorators/Designers Lawn Care Contractors
Management Consultants Marketing Research Firms
Marriage/Family Counselors Medical/Testing Labs
Messenger/Courier Services Mortgage Bankers/Brokers
Nurses Nursing Homes
Outplacement Services Photographers
Physical Therapists Printers
Property Managers Public Relations Consultants
Quality Assurance Consultants Real Estate Agents/Brokers
Social Workers Software Developers
Tax Preparers Teachers
Telephone Answering Services Temporary Employment Agencies
Training Specialists Translators
Travel Agents

Are you one of the new professionals?

Of the suits that could be brought against professionals, the two most common are for breach of contract and negligence in the performance of services. Negligence suits, which are more frequently made, arise from damages sustained due to the professional’s failure to perform according to known standards of conduct in his or her field. There must also be a close relationship between the negligent acts and the damage that they cause.

The financial consequences of such suits, including the costs to defend them, can be severe. As a result, it is critical that professionals recognize their exposures to financial losses, and adopt effective means to deal with them. Two well known ways of managing professional liability risks are to (1) transfer them to an insurance company, and (2) implement a comprehensive loss prevention program.

The insurance industry has responded to this issue by expanding its professional liability capacity to embrace many of the newer classes of professionals, including all in the above list. Some policy forms (which are not standardized) are tailored to a single profession (such as home inspector). Others insure the acts of the professional by describing them in a space on the policy declarations page or in an endorsement.

A few professionals, such as morticians, opticians, printers, and photographers can obtain professional liability insurance in a business owners policy (BOP) or similar package-type policy available from some insurers. More often, it is necessary to secure a separate policy which may be sponsored or endorsed by a trade association.

The “insured” in many of these policies includes the covered organization itself and its past or present partners, directors, officers, and employees while acting within the scope of their duties. The policies include coverage for defense costs, even if a suit proves to have no merit. The policy premium is typically based on the following factors: the profession involved, the number of professionals covered, annual revenues, location of the business, the limit of liability, and the deductible. Applicants are encouraged to shop carefully for this protection, since eligibility requirements, underwriting criteria, policy language, and pricing do vary among insurers.

Insurance protection is not enough, however! The professional must establish and maintain a loss prevention program that will help minimize the chances of malpractice claims being brought in the first place. There are many effective loss prevention techniques that can be adopted, including the following:

■Establish the fees and/or billing practices at the beginning of a client relationship.
■Use engagement letters, contracts and other means to precisely identify the scope of the services to be performed.
■Keep written documentation of all activity, including telephone calls, billing calculations, etc.
■Where feasible, participate in peer reviews.
■Avoid situations that present conflicts of interest.
■Obtain appropriate credentials and certifications, and take continuing education courses to remain current regarding developments within the profession.
■Screen new clients carefully and keep existing clients informed at all times.
■Avoid giving specific warranties and similar performance guarantees.
A well designed combination of insurance and loss prevention will go a long way in managing the potential liabilities that professionals must face as they deliver their services to their clients.