What is “professional liability”?

Professionals, such as doctors, lawyers and accountants, along with a growing number of other occupations, work in fields that need special protection. Pharmacists, architects, engineers, opticians, beauticians, insurance agents, and various types of consultants are frequently sued due to the high standard of accountability under which they operate.

In most instances, a type of coverage called a general or commercial general liability policy will protect a business against the damage or injury their actions may cause to others. However, this type policy is designed to handle loss associated with fairly generic and low-risk activities. Examples are customers who cut their hands on a sharp edge of an office’s reception desk or a customer who is hurt when she collides with a clerk who is stocking a shelf. Much more is at stake with professional activities. Consider several aspects that make professional liability tougher to insure:

Professional Advice – persons who need professional liability coverage are those whom the general public depend upon as experts. They provide assistance with special issues such as personal health, expensive business transactions, or personal crises. Many of these situations also involve a high-level of emotion. When something goes wrong, it is much more likely that a client will pursue “justice” through the courts.

Professional Reputation – Any claim a client makes against a professional involves that individual’s reputation. In many instances, paying a claim bears the stigma of admitting to a mistake. The professional may suffer from a lowered status and could face sanctions from related professional associations or regulatory authorities. Further, many professionals are proud of their standing and their abilities; admitting being wrong is usually fiercely resisted.

Higher Defense Costs – Defending against claims of professional error or incompetence is usually very expensive and time-consuming. Trials will usually involve expert testimony and technical arguments and the likelihood of resolving issues quickly (particularly via a settlement) is extremely low.

Identifying A Loss – The timing between when a loss occurs and when a claim or suit is filed can be a mystery. A professional may find out she’s being sued today for something that happened ten years ago. The potential for a huge time gap before a loss arises makes professional liability a very difficult type of business to underwrite and to price.

You have invested a lot in your business and your profession. It is important to be sure that you take the steps to deal with the special as well as the routine sources of loss. As usual, it is always a good idea to discuss your questions and needs with an insurance professional.

What is “subrogation”?

Are you familiar with “subrogation”? It is a common insurance policy provision and it is an important one! Your appreciation for insurance will increase if you learn about it!

An insurance policy, no matter what is being covered, is a contract between the insurance company and the person or organization that wants protection. When a policy involves liability coverage, the contract, essentially, means that the insurance company will handle losses (injuries to other people and/or loss or damage to property that belongs to others). However, eligible losses are restricted to those that are the policyholder’s legal responsibility. There are many times that a loss is settled under a liability policy; but someone else may actually be responsible. Consider an example:

Jon and Jenny are new to a neighborhood, so a few months after moving in, they throw a huge party and invite all of their neighbors. One of the activities is volleyball and they set up a net and space to play in their backyard.

The neighbors know each other well and they are quite competitive. During one game, an accident happens. Glen is injured while trying to block a ball at the net. The injury is very serious and Glen ends up paralyzed. He sues Jon and Jenny for his substantial medical costs and Jon and Jenny’s insurance company settles the loss.

Later, it is discovered that Paul, who was on the opposing volleyball team, had grabbed and pulled Glen when they were battling at the net, causing Glen to lose his balance and fall. Jon and Jenny’s insurance company learns of this and they sue Paul to recoup the money they paid for the loss.

The effort to recover payment made by Jon and Jenny’s insurance company illustrates “subrogation”. It is a legal right that allows the insurance company to take over a right held by their policyholder. Once an insurance company claims this right, it can pursue recovery from another person (including other entities such as partnerships or corporations) who is actually responsible for a loss.

Subrogation is an important process. When it is used, it helps to keep everyone’s insurance costs down and it also makes sure that liability insurance policies work as intended – by making sure that those parties who cause losses are held accountable