Tag Archives: Professional Liability Policies

No Coverage For Claims Made Outside Of Claims-Made Policy Period

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Thomas Benjamin Boley | Wiley Rein

The United States District Court for the Northern District of Illinois, applying Illinois law, has granted a legal professional liability insurer’s motion for summary judgment, holding that its claims-made policy did not apply to various claims that were first made either before or after the policy period. Twin City Fire Ins. Co. v. Law Office of John S. Xydakis, P.C., 2023 WL 2572468 (N.D. Ill. Mar. 20, 2023).

The insured attorney bought a claims-made legal malpractice insurance policy that had a policy period of January 26, 2017, to January 26, 2018, and a retroactive date of January 26, 2016. The policy, which the insured did not renew, had a 60-day automatic extended reporting period. The policy gave the insured the right to purchase a longer extended reporting period, but the insured did not exercise the option.

Three claims were made against the attorney: (1) a lawsuit alleging failure to pay expert witness fees in 2012, (2) judicial sanctions levied in 2019 against the attorney and his client, and (3) a 2019 lawsuit by one of the law firm’s former employees alleging legal malpractice, breach of contract, and breach of fiduciary duty. The attorney sought coverage for these claims. The insurer denied coverage because the suits were made outside the policy period and/or involved acts before the retroactive date.

The court granted the insurer’s motion for summary judgment. The court declared that the insurer owed no coverage because the first lawsuit involved acts occurring prior to the retroactive date, and because the 2019 sanctions and lawsuit occurred after the policy period and automatic extended reporting period expired.

The insured raised a peripheral issue, arguing that a genuine issue of material fact existed as to whether the insurer was estopped from denying coverage. The attorney argued that, by regulation, the insurer should have offered at least a 12-month extended reporting period and that the insurer failed to notify him that the policy would be non-renewed. The court rejected both arguments, noting that the policy offered the insured the right to purchase a longer extended reporting period and that the insurer provided a nonrenewal notice to the insured’s broker. The court also rejected the argument on a legal basis, observing that “estoppel may not be used to create or extend coverage where none exists.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Sixth Circuit Holds Attorneys’ Fee Award Does Not Constitute Damages Under Professional Liability Policy

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Kent Crocker | PropertyCasualtyFocus

The Sixth Circuit Court of Appeals affirmed an order granting summary judgment in favor of the insurer in Wesco Insurance Co. v. Roderick Linton Belfance LLP, holding that the award of attorneys’ fees was a “sanction” and thus was not covered damages under the Wesco professional liability policy.

This matter concerned an award of attorneys’ fees stemming from claims that were brought against schools under the Individuals with Disabilities Education Act (IDEA). The IDEA provides federal funds to states to ensure that students with disabilities receive an appropriate education tailored to their needs. When parents believe that a school has failed to live up to the IDEA’s expectations, they can raise their concerns via an administrative process. If that process fails, the IDEA provides parents a cause of action against schools to obtain judicial relief. However, if the suit against the school is frivolous or was filed for improper purposes, the IDEA has a fee-shifting provision that permits the school to recover its attorneys’ fees from the filing attorney.

Here, three attorneys jointly pursued four IDEA claims against four school districts in Ohio, alleging a failure to provide their student clients with an appropriate education. After significant administrative litigation, a hearing officer found for the school district in each proceeding. Two of the three attorneys then pursued one of the claims in court against the Akron School District. The trial court ruled in favor of the Akron School District, and the Sixth Circuit affirmed. The school districts then sued the firm that employed the attorneys, alleging that the claims were frivolous, and sought an award of attorneys’ fees pursuant to the IDEA’s fee-shifting provisions.

Wesco issued a professional liability policy to the law firm that employed the attorneys that was in effect during the IDEA proceedings. Wesco refused to defend and indemnify the attorneys and then sought a declaratory judgment that the policy did not apply. Wesco contended that the policy defined “damages” to exclude an award of “sanctions” under “federal” law. The district court granted summary judgment for Wesco, agreeing that the attorneys’ fee award for the school districts under the IDEA was a “sanction” and thus was not “damages” under the policy. Two of the three attorneys then appealed.

The Sixth Circuit reviewed the policy’s definition of “damages,” which stated that “damages” did not include, among other things, “civil or criminal fines, sanctions, penalties or forfeitures, whether pursuant to federal, state or local law, statute, regulation or court rule and injuries that are a consequence of any of the foregoing.” Ultimately, the Sixth Circuit held that because the school districts had shown the attorneys violated their duties not to file complaints that were “frivolous” or for an “improper purpose,” it was clear that the awarded attorneys’ fees constituted a “sanction” under the ordinary meaning of the term. Accordingly, the Sixth Circuit affirmed the district court’s ruling that an award of attorneys’ fees under the IDEA constituted a sanction that was not covered under the Wesco professional liability policy.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Dynamics of Managing Professional Liability Claims for Design Builders

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Eric M. Clarkson | SDV Insights

Nearly half of America’s construction projects are now design-build in a continuing shift. As a result, contractors are taking on more professional liability (“PL”) risk than ever before, and the risk management landscape is changing. There are unique challenges to managing PL risks and claims. Specifically, PL coverage requires proactive claim management and project coordination. As a result, design-build projects should involve significant collaboration amongst all of the parties involved in the project.

Claims Made Coverage Considerations
PL policies typically provide three types of coverage:

  1. Professional Liability covers defense and indemnity against claims arising out of acts or omissions of the insured in rendering a defined set of professional services –including construction management, project management, and design work in the design build context.
  2. Protective Indemnity covers protective claims for amounts the insured is entitled to recover from downstream design professionals arising out of their failures in rendering professional services that exceed the downstream party’s own liability insurance.
  3. Rectification or Mitigation Coverage covers the cost to rectify a professional error before a claim is made.

PL policies are written on a claims-made and reported basis, meaning they cover claims made and reported to the carrier within the policy period. An insured must tender notice of any claims or even potential claims to their carrier to preserve coverage. This requirement can create significant practical challenges as construction progresses and issues arise. If a design-builder spends time trying to avoid or fix an issue delaying the notice to its insurer, it can find itself without coverage. This is especially problematic with “mixed” or “ambiguous” claims involving design errors and installation errors.

Design-builders often wisely seek to broaden the definition of “professional services” to allow for greater coverage. However, they need to take care to realize that in doing so, they have also expanded their notice obligations. Because the policies require timely notice of a claim or a potential claim to preserve coverage, anything that could be an indication of a project management or design error may trigger the insureds’ notice obligation.

Notice and reporting issues can compound based on interdependent portions of a given construction project. PL policies typically contain interrelated claims provisions that push any new claim back into a past – and thus, potentially expired – policy period if it is related in any way to circumstances that occurred prior to the current policy. Although this may seem congruent with the intent of claims-made coverage, it makes complying with this condition difficult in the construction context. For example, where delays arise early on in a project that does not implicate PL coverage during one policy period, and redesign or sequencing problems occur during a subsequent policy period, carriers may argue they are interrelated. As a result, coverage might be impacted if the delays were not tendered to the carrier as a claim first made in the initial policy period.

For these reasons, it is critical to provide notice to a PL carrier early on for anything that may even potentially relate to PL risk. A project’s progress, sequencing and/or redesign can shift over the lifetime of a project based on early logistical complications or disagreements. Accordingly, providing notice to PL carriers of anything that might implicate professional risk at some point becomes critical. As all parties to a design-build project take on more professional responsibility, this means developing tools and strategies to allocate and manage PL risk from the outset is critical.

Setting up Design-Build PL Risk Transfer for Success
PL coverage is a valuable and effective tool for addressing construction management and design risk. However, it is critical that your project is set up to take advantage of the coverage that is available. Early and extensive coordination of all parties on a project, especially amongst brokers, risk managers, and operations departments, is essential to accomplish intended PL risk transfer. Before the bid, parties should be working to identify and delegate design risks and lining up insurance products to cover those risks. This should include collaborating with designers and architects, as well as downstream parties that may be taking on more design responsibility than usual, along the way to ensure a coordinated effort at identifying and managing potential PL risk.

It is imperative to educate all parties involved in a project on the need for effective claims management. This may mean designing and implementing protocols to help project managers or people on the ground to recognize issues that could potentially implicate PL coverage. People working in day-to-day operations need to know when and how to elevate things to the risk management and legal teams. Something that first arises as a delay or contract argument amongst project entities or suppliers might be fought over for years when it could have just been addressed by PL coverage in the first instance. However, if everyone on the project is educated and protocols are in place up front for identifying and elevating potential claims, PL coverage can respond effectively.

PL policies are designed to respond where any professional error could potentially give rise to a claim. Particularly, rectification coverage under these policies should help mitigate the costs to correct errors before they result in a claim. However, some PL policies may require rectification claims to be submitted and approved before covered work takes place. This presents logistical issues on a project because keeping up with schedules and sequencing is critical, and the people on the ground are working hard to get problems resolved quickly and efficiently. Accordingly, procedures for identifying and preparing potentially covered costs need to be integrated into project and risk management processes to ensure coverage is captured.

With more parties taking on professional responsibility on design-build projects, greater coordination and collaboration amongst them is needed to effectively manage risk transfer. In the coverage context, and with PL policies specifically, this means early and ongoing management of protocols and procedures tuned to the nature and requirements of the policies is essential.

Conclusions
PL coverage can be a highly effective risk transfer tool in the burgeoning design-build market. However, these policies’ unique aspects require highly proactive planning and ongoing coordination to realize their potential. With all parties to design-build projects potentially benefiting from effective risk transfer, developing comprehensive strategies and protocols to identify and respond to issues that have the potential to implicate PL coverage is essential.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Dynamics of Managing Professional Liability Claims for Design Builders

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Eric M. Clarkson | Saxe Doernberger & Vita

Nearly half of America’s construction projects are now design-build in a continuing shift. As a result, contractors are taking on more professional liability (“PL”) risk than ever before, and the risk management landscape is changing. There are unique challenges to managing PL risks and claims. Specifically, PL coverage requires proactive claim management and project coordination. As a result, design-build projects should involve significant collaboration amongst all of the parties involved in the project.

Claims Made Coverage Considerations

PL policies typically provide three types of coverage:

  1. Professional Liability covers defense and indemnity against claims arising out of acts or omissions of the insured in rendering a defined set of professional services –including construction management, project management, and design work in the design build context.
  2. Protective Indemnity covers protective claims for amounts the insured is entitled to recover from downstream design professionals arising out of their failures in rendering professional services that exceed the downstream party’s own liability insurance.
  3. Rectification or Mitigation Coverage covers the cost to rectify a professional error before a claim is made.

PL policies are written on a claims-made and reported basis, meaning they cover claims made and reported to the carrier within the policy period. An insured must tender notice of any claims or even potential claims to their carrier to preserve coverage. This requirement can create significant practical challenges as construction progresses and issues arise. If a design-builder spends time trying to avoid or fix an issue delaying the notice to its insurer, it can find itself without coverage. This is especially problematic with “mixed” or “ambiguous” claims involving design errors and installation errors.

Design-builders often wisely seek to broaden the definition of “professional services” to allow for greater coverage. However, they need to take care to realize that in doing so, they have also expanded their notice obligations. Because the policies require timely notice of a claim or a potential claim to preserve coverage, anything that could be an indication of a project management or design error may trigger the insureds’ notice obligation.

Notice and reporting issues can compound based on interdependent portions of a given construction project. PL policies typically contain interrelated claims provisions that push any new claim back into a past – and thus, potentially expired – policy period if it is related in any way to circumstances that occurred prior to the current policy. Although this may seem congruent with the intent of claims-made coverage, it makes complying with this condition difficult in the construction context. For example, where delays arise early on in a project that does not implicate PL coverage during one policy period, and redesign or sequencing problems occur during a subsequent policy period, carriers may argue they are interrelated. As a result, coverage might be impacted if the delays were not tendered to the carrier as a claim first made in the initial policy period.

For these reasons, it is critical to provide notice to a PL carrier early on for anything that may even potentially relate to PL risk. A project’s progress, sequencing and/or redesign can shift over the lifetime of a project based on early logistical complications or disagreements. Accordingly, providing notice to PL carriers of anything that might implicate professional risk at some point becomes critical. As all parties to a design-build project take on more professional responsibility, this means developing tools and strategies to allocate and manage PL risk from the outset is critical.

Setting up Design-Build PL Risk Transfer for Success

PL coverage is a valuable and effective tool for addressing construction management and design risk. However, it is critical that your project is set up to take advantage of the coverage that is available. Early and extensive coordination of all parties on a project, especially amongst brokers, risk managers, and operations departments, is essential to accomplish intended PL risk transfer. Before the bid, parties should be working to identify and delegate design risks and lining up insurance products to cover those risks. This should include collaborating with designers and architects, as well as downstream parties that may be taking on more design responsibility than usual, along the way to ensure a coordinated effort at identifying and managing potential PL risk.

It is imperative to educate all parties involved in a project on the need for effective claims management. This may mean designing and implementing protocols to help project managers or people on the ground to recognize issues that could potentially implicate PL coverage. People working in day-to-day operations need to know when and how to elevate things to the risk management and legal teams. Something that first arises as a delay or contract argument amongst project entities or suppliers might be fought over for years when it could have just been addressed by PL coverage in the first instance. However, if everyone on the project is educated and protocols are in place up front for identifying and elevating potential claims, PL coverage can respond effectively.

PL policies are designed to respond where any professional error could potentially give rise to a claim. Particularly, rectification coverage under these policies should help mitigate the costs to correct errors before they result in a claim. However, some PL policies may require rectification claims to be submitted and approved before covered work takes place. This presents logistical issues on a project because keeping up with schedules and sequencing is critical, and the people on the ground are working hard to get problems resolved quickly and efficiently. Accordingly, procedures for identifying and preparing potentially covered costs need to be integrated into project and risk management processes to ensure coverage is captured.

With more parties taking on professional responsibility on design-build projects, greater coordination and collaboration amongst them is needed to effectively manage risk transfer. In the coverage context, and with PL policies specifically, this means early and ongoing management of protocols and procedures tuned to the nature and requirements of the policies is essential.

Conclusions

PL coverage can be a highly effective risk transfer tool in the burgeoning design-build market. However, these policies’ unique aspects require highly proactive planning and ongoing coordination to realize their potential. With all parties to design-build projects potentially benefiting from effective risk transfer, developing comprehensive strategies and protocols to identify and respond to issues that have the potential to implicate PL coverage is essential.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

“Tail Coverage” – Understanding The Extended Reporting Period

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Pamela G. Michiels | Phelps Dunbar

Professional liability policies, almost always written on a claims-made basis, typically contain a number of options for the insured to obtain an Extended Reporting Period (ERP). What does that mean? And why might it be necessary, or at least a good idea? While many variations on the ERP exist, the basic purpose, function and operation of the ERP are fairly standard. Here’s what you should know.  

The ERP, also known as “tail coverage,” provides for an additional period of time during which the insured can report a claim after its claims-made policy has expired. That’s important, because the policy itself typically provides that the claim must be first made against the insured, and reported to the insurer, during the policy period. Tail coverage typically isn’t necessary if the insured is renewing its coverage, but it can be invaluable where that’s not the case. 

  • Some policies provide a limited “automatic” ERP to allow the insured a grace period, usually 30 to 60 days, to report a claim that was made during the policy period.This typically costs the insured nothing. 
  • If an insured’s policy is cancelled or non-renewed by the insurer, or the insured elects to cease carrying professional liability coverage, an “optional” ERP is available at an additional cost to the insured. The cost is usually based on a multiple of the premium on the cancelled or expiring policy. Such tail coverage is typically purchased in one-year increments, up to five years, and sometimes longer – but as the tail grows, the cost goes up, since the insurer is taking on additional risk.
  • Typically, the only instance in which an ERP will not be offered is where the policy has been cancelled for cause – nonpayment of premium, fraud or material misrepresentation.
  • Some ERPs extend the time during which a claim that was first made during the policy period can be reported.Other ERPs allow for the extension of coverage where the claim was both first made against the insured and reported to the insurer during the ERP, as long as the wrongful act giving rise to the claim took place after the retroactive date and prior to the end of the original policy period. 
  • The ERP does not extend the policy period, and does not change the scope of coverage or increase the policy’s available limits.
  • A common reason to obtain tail coverage is where an insured is winding up its business – due to retirement, sale or unprofitability, for example. While there’s no need to maintain professional liability coverage on a shuttered business, the insured will want to maintain some protection against wrongful acts it may have committed prior to the policy’s expiration, but a claim has not arisen and thus cannot be reported until after the policy has expired.
  • An ERP is always optional, and an insured is never required to purchase one. However, the ERP provides a great deal of additional protection and should be seriously considered, especially if the insured foresees a major change to its business or its insurance program.