What does it mean for a professional liability insurance policy to be “claims made” basis?
“Claims made” refers to policies that provides coverage for claims made against the firm during a policy period. As always, this affects only claims from professional services performed after the “retroactive” policy date. Under a claims made policy, all coverage terminates when a policy cancels or is not renewed. Once a claims made policy lapses, it is as though it never existed. Therefore it is critical to avoid compromising retroactive coverage and to maintain continuous insurance coverage.
Any claims or potential claims should be reported to the insurance company that has a policy in force at the time you are made aware of the claim. It is also useful to know that most professional liability insurance policies do not automatically renew.
What are some common exclusions listed on a professional liability insurance policy?
It is very important to be aware of the exclusions listed in professional liability policies. Following are some exclusions that can be reason for a claim to be denied:
- Prior knowledge: The insurance company will not cover claims that a member of the insured firm had knowledge of before the effective date of the policy.
- Prior to the retroactive date: The insurance company will not cover claims that arise out of professional services performed prior to the retroactive date of the policy.
- Delayed claim reporting: The insurance company will only cover claims that are reported within a reasonable period of time.
- Claims against a firm not named on the policy: It’s crucial to list all current and predecessor firms for which insurance coverage is desired. Most insurance policies will only cover claims made against a firm named on the policy.
- Arising out of non-professional services: The policy will only cover negligence in the performance of professional services. Examples of claims of a non-professional nature are breach of contract, fraud, payment disputes, and intentional acts.
This discussion of professional liability insurance is not a determination of insurance coverage for specific situations. Consulting a reputable firm and gaining familiarity with the specifics of a contract is key to optimizing cost, coverage, and risk management.