1
Q
Professional Liability Insurance
A
- Higher duty of care on people who provide specialized services or hold themselves out to the public as having special skills.
- Law determines negligence in the performance of care according the the standard of a reasonable person, but for professionals, it is determined by the standard of other professionals in the field.
- Also known as Errors and Omissions Insurance
- Coveres those with a liability exposure arising out of a specialized services provided in the course of their practising a profession.
- Coveres negligent acts, errors, and omissions in the delivery of professional services or failure to deliver those services.
- Ex. Medical Malpractice for Doctors and Health Care professionals as well as malpractice for lawyers, engineers, architects, actuaries and accountants, barbers, hairstylists, morticians.
2
Q
Professional Policies
A
- Cover the economic consequences of rendering or failing to render some professional services.
- Does not require that a third party have suffered direct bodily injury or property damage for the coverage to respond.
- Wordings are tailored to the profession and the exposure foreseen in the profession.
- General liability coverage is also needed for harm unrelated to their professional services - i.e. slip and fall.
- Underwriter should try to ensure that the same insurer issues both the professional liability and general liability insurance policies to avoid any unclear sources of claims.
3
Q
Claims
A
- Large amount of the expenses have to do with the investigation of the claim, and defending the insured. There are several reasons for this: 1. Professional Reputation 2. Complexity 3. Multiple defendants
4
Q
Common Features
A
- Currently mostly written on a claims made basis. I.e. Covers any claim made against the insured during the policy period even if the wrongful act that gave rise to the claim did not take place during the policy period. This is provided that is did not also take place before the retroactive date of the policy.
- Occurrence based policies would respond to the loss that occurred during the policy period, even if the claim against the insured is not made until after the policy has expired.
- Policies used to be on an occurrence basis.
- To avoid gaps in coverage, the claims-made policy will normally include a retroactive date that corresponds to the expiration date of the occurrence based policy.
- They contain an annual aggregate limit, i.e. the total amount payable in any one policy period.
- Policy includes defence costs (except for QB)
- Some policies will have special features - i.e. fraud being covered in a limited way for lawyers.
5
Q
The Evolution of Professional Liability Insurance
A
- Started with the liability crisis in 1980.
- Shortage of capacity for liability risks of all kinds.
- Vehicle for alternative risk transfer.
- Tail makes it hard to underwrite and correctly price, and in turn, make a profit.
- Claims-made allows insurer to price with more confidence because exposure is limited to the policy effective dates.
- Complication in terms of incurred but not reported.
- But even with the complication, still more stable underwriting and business practices.
6
Q
Tail
A
An interval between the export of an occurrence based liability policy and a claims made policy for an occurrence during the policy term.
7
Q
Market for Professional Liability Insurance
A
- Professionals often make their own arrangements due to the coverer being more expensive and specialized.
- A number of large companies choose to self insure a portion of their professional exposure with a self insured retention.
- They assure themselves adequate amounts of coverage by supplementing their SIR’s with excess liability insurance purchased in the traditional insurance market.
- Gives companies the incentive to practice loss prevention and have more control over claims handling.
- Insurers can compete with one another to provide excess insurance to those companies that want additional coverage beyond the minimum levels they provide themselves.
8
Q
Underwriting Professional Liability
A
- Name of the applicant and the name of all professionals working for the applicant.
- The total number of the firm’s employees, including non professional staff.
- Whether an insurer has declined or refused a new policy for a professional or any of those working for the applicant, and why.
- Qualifications and experience
- Any allegations of professional negligence, oral or written.
- Any contracts and contractual arrangements.
9
Q
Risk Management Practices
A
- May be most important information.
- Needs to feel confident that the applicant is properly aware of and concerned about exposures to loss and taking the steps to control those exposures.
- Are applicants screened?
- Does the applicant have guidelines to avoid and resolve conflicts of interest? These are a frequent source of litigation.
- Are the contracts specific?
- Do the contracts limit the applicants liability for damages should the client sue?
- Does the applicant have quality control procedures in place?
- Who has been designated to receive claims against the application?
- Have protocols been established for handling claims or incidents?
- If the applicant has an SIR, the does it have people on staff to deal with incidents and claims?
- Who are the lawyers used by the applicant? What’s their reputation?
- What types of clients does the applicant serve?
Publicly traded companies have a higher exposure to lawsuits than do privately owned businesses or non-profits.
10
Q
Rating for Professional
A
- Rating bases: Normally based on the number of professional staff in the applicant’s practice, or on the anticipated annual revenues, depending on the profession.
- Rate modification: rates may need to be modified in accordance to the individual characteristics of a risk, and if there is a greater severity to professional exposure.
- Figures will be needed for three years to determine the health of the business - if there have been any cuts? Number of clients?
11
Q
Change in Professional Concentration
A
Concern for two reasons
- The scale may be much greater
- Greater chance for error while they become familiar with the differing demands of ventures.
12
Q
Directors and Officers Insurance
A
- Can be held personally liable for they acts or omissions in managing the company’s affairs.
- Lawsuits based on allegations of negligence, error, omission when managing corporate affairs where the injured party or plaintiff has suffered loss.
- Some companies self insure, others seek out D&O insurance.
13
Q
Director and Officers Policy
A
- A specialized form of liability insurance.
- Defends claims made against D&O.
- Covers for liability for their wrongful acts in discharging their legal duties for the companies, including misstatements, misleading statements and breaches of duty.
- Limits depend on market conditions.
- SIR’s also exist, and are relatively large.
- Public enterprises have more exposure to loss because of the threat of lawsuits be shareholders.
14
Q
Extensions of Coverage Available
A
- Coverage for prior acts of directors and officers
- Coverage for former directors and officers
- Coverage for legal proceedings launched from outside Canada
- Defence costs for criminal charges that are unsuccessful, or withdrawn later.
15
Q
Exclusions
A
Vary between policies, but common ones are:
- Proven deliberate dishonesty
- Libel or slander
- Bodily injury or property damage
- Failure to maintain adequate insurance
- Fines and penalties
- Pollution
16
Q
Underwriting Directors and Officers Insurance
A
- Analyze latest annual reports and financial statements, as well as a financial analysis from a third party (D&B), and compare these to other risks in the industry group.
- Risk management considerations, including education and occupational backgrounds.
- Industry standing: risks standing in the industry, how well it is accepted by the public, what its principal product or service is. What the market share of the risk is in the industry
- General company history.
- Company by-laws to see commitment to indemnify directors, officers, employees and agents for claims made against them personally in connection with their work for the company.
17
Q
Directors and Officers for Non-Profit Organizations
A
- Profitability not a concern.
- Claims can arise from: wrongful termination, discrimination, mismanagement of funds, inadequate training of volunteers and employees.
- Loss frequency and severity are lower.
- Need to defend and claims defence exposure still there. Less likely to have their own funds and resources available to do so.
18
Q
Excess and Umbrella Liability Insurance
A
- Developed to provide additional protection for policy holders against catastrophic events when primary insurers are not willing to put up the necessary limit in the primary policy.
19
Q
Excess Policies
A
- Typically follow form, i.e. that coverage and other provisions of the excess policy are typically those of the underlying or primary policy. The provisions of the excess policy follow, or correspond to the provisions of the primary policy.
- In excess to single layer of underlying policy.
- On rare occasions, policies can stand alone. Either in cases where they are in excess of SIR, or when the underwriter wants the excess policy to be more restrictive than the underlying.
- Coverage for classes can be extended under an excess policy when those classes are typically excluded under and umbrella (i.e. professional liability)
- Some insurers will not offer excess unless they write the underlying to ensure proper claims handling.
- Multiple excess policies can exist when large amounts of insurance are needed. Typically used with the required limit of insurance is more than one insurer is willing to provide itself.
20
Q
Umbrella Policies
A
- Additional limits of insurance.
- Provides broader coverage than the primary policy.
- Has drop down coverage, or that policy coverage will drop down from it’s excess position to the primary level to insured against certain specified types of liability that the primary policy does not insured against.
- Umbrella will provide primary coverage when the aggregate limits on the primary policy have been exhausted.
- Umbrella policy allows the insured to obtain additional limits of insurance over a number of underlying policies, rather than obtaining an excess policy for each underlying. Ex: CGL and Auto
- Can be arranged in layers, once in excess of another.
- Covers liability against personal injury and property damage.
- Covers a wider territory than the underlying, typically worldwide.
21
Q
Personal Injury
A
Bodily injury, disability, shock, fright, mental anguish, false arrest, humiliation, discrimination, libel and slander.
22
Q
Defence Expenses for Excess and Umbrella Policies
A
- Umbrella covers defence costs when aggregate limits exhausted.
23
Q
Underwriting Excess and Umbrella Policies
A
- Share all concerns of general liability policy.
- Concern in underlying wordings to determine what coverages are provided.
- Concern with underlying policy being with an insurer of acceptable quality, of good reputation.
- Do the effective dates of the umbrella match the effective dates of the underlying?
- Does the insured do business in the USA? (no caps on non-economic loss)
- Effect of exchange rate between countries
24
Q
Rating Excess and Umbrella Policies
A
- Based on the premiums for the underlying policies.
- May be a percentage of the underlying.
- May be a set dollar amount per vehicle if there is auto.
- Have to determine if the premium for the underlying is reasonable.
25
Aviation Insurance
- The insurance of aviation and aerospace industries.
26
Common Aviation Policies
- Aircraft Hull and Liability
- Airport Liability
- Hangarkeepers Liability
- Nonownership Liability
- Cargo liability
- Products liability
27
Aircraft Hull and Liability
- Combines insurance against physical damage (first party coverage) and liability (third party coverage) in one policy.
First Party
- Insured can choose variations in coverage.
- All risk in flight, all risk while not in motion, all risk while not in flight.
Third Party
- Three parts:
1. Property damage caused by the accident.
2. Bodily injury to anyone other than passengers.
3. Bodily injury to passengers cause by an occurrence and arising out of the ownership, maintenance or use of the aircraft.
- Separate limit available for each coverage.
- Tendency to have one limit for all three.
28
Airport Liability
Covers hazard associated with the operation of an airport. I.e. runway maintenance, operations of snow removal equipment.
- Typically used for small airports, larger and government run and SIR.
29
Hangarkeepers Liability
Protects the insured against liability for loss or damage to aircraft owned by third parties while such aircrafts are in the care, custody and control of the insured.
30
Nonownership Liability
Covers liabilities arising from the operation of aircraft not owned in whole or in part by the insured.
31
Cargo Liability
Insurers damage, destruction, or loss of cargo during shipment.
32
Products Liability
Covers manufacturers, dealers and service companies liability arising from the sale, repair or maintenance of an aircraft.
Includes manufacturers or parts for the aircraft, as well as manufacturers of the aircraft itself.
33
Aviation Insurance Market
- Domestic market in Canada is small.
| - Principally american or Lloyd's markets.
34
Underwriting Aviation Insurance
- Who is the insured
- What kind of aircraft is being insured, and for what
- Where is the aircraft to be based
- What is the make and model
- How old is the aircraft
- Who will be flying the aircraft
- Will it carry passengers
- Will it carry cargo, if so, what
- Is it leased or rented to others
35
Event Cancellation Insurance
- Covers an insured for losses caused by the cancellation, curtailment or postponement of an insured event.
36
Losses that Create a Need
- Nonrecoverable costs incurred before the loss (advertising costs)
- Sums that the insured is obliged to pay to others, whether the event takes place or not (refunds)
- Losses from gross receipts on advanced ticket sales
- Losses in revenue from planned advertising or sponsorship opportunities
- Losses incurred when television rights cannot be sold as a result of the cancellation
- Loss of any other revenues that might be secured contractually before the event.
37
Contingency Risks Insurance
- Unusual exposure.
- Event cancellation insurance
- Non-appearance Insurance
- Breakdown of transmission insurance
- Death and disgrace insurance
- Prize indemnity insurance
38
Non-Apperance Insurance
- Loss by failing to appear at an event.
- May have financial guarantees by or on behalf of participants.
- Appearance fees.
- Covers named individuals for their own lost income and for the liability they incur to the organizers or others for failing to appear when circumstances are beyond their control.
39
Breakdown of Transmission Insurance
Recovery of costs and liability to the event organizers if anything beyond the organizations control prevents radio or TV signals from being transmitted (for events)
40
Death and Disgrace Insurance
Indemnifies an organization for loss incurred when a public figure acting as spokesperson for that organization suddenly dies, or becomes involved in a criminal or disgraceful situation, forcing the organization to cancel, withdraw, or retract its advertising or publicity campaign.
41
Prize Indemnity Insurance
Indemnifies for loss arising when something occurs or someone does something that was possible but nor expected, so that a prize or bonus must be awarded.
Ex. Hole in One
42
Underwriting Contingency Risks Insurance
- Considerations include contractual arrangements and contingency plans.
- Contents must preserve the element of chance.
43
Crop Hail Insurance
- Hail storm causing loss of income.
- Can come from a variety of providers - stock companies, cooperatives, associations.
- Applicant must have an insurable interest in the crop to be insured.
44
Crop Hail Policies
Three main types:
1. Full Cover Policy. basic rate for all common crops. Does not pay for any loss of less than 5%, but when it exceeds that, it pays for the full percentage of loss sustained.
2. 10% deductible policy. Written at 75% of basic rate. Insured responsible for first 10% of loss.
3. 25% deductible policy. Insured responsible for first 25% of loss.
45
Underwriting Crop Hail Insurance
- Rate set by the township and their experience with hail.
| - Farmer chooses the amount of insurance per acre. Underwriter can accept or reject.
46
Livestock Morality Insurance
- Protects the insured against loss caused by the death of livestock.
47
Livestock Morality Policy
- Term life insurance for animals.
- If animal covered under the policy dies, the insured is indemnified for the actual cash value or the animal at the time of death.
- Unique cancellation condition - policy premium is considered fully retained after nine months of the policy term.
- No coverage for animals in transit to be slaughtered.
48
Common Endorsements
- Infertility coverage - economic loss recoverable
- Semen suitability coverage - injury to stud to make it unsuitable for breeding
- Economic slaughterhouse coverage - economic loss for a performance animal
49
Exclusions
Loss as result of the following is excluded:
- Surgical operation
- Administration of drugs, unless by licensed vet
- Mysterious disappearance or escape
- Intentional slaughter
- Malicious, wilful, or intentional acts by the insured
- Voluntary parting with title or possession
- Animal with defect
50
Underwriting Livestock Morality Coverage
- Consider the applicant
- Performance animals - records, prize winnings, race earnings. May need independent appraisal
- Certificates of health
C121
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