Less than twenty years ago, few people had ever heard of a professional liability suit. That has changed dramatically. In the past fifteen years, directors and officers liability insurance has become so pervasive that now more than 98% of all organization whose stock is listed on the New York Stock Exchange purchase this coverage. Professionals in virtually all occupations now face liability arising from allegations of negligence or improper conduct.

Professional liability - liability arising out of rendering or failing to render services of a professional nature - is excluded under Commercial General Liability (CGL) policies. A variety of professional liability insurance coverages has been developed in recent years for many professionals, such as physicians, surgeons, dentists, lawyers, accountants, architects, insurance agents, directors and officers of corporations. Each policy is tailored to fit a specific occupational need. Most policies are written on a claims-made basis.

Professionals have two kinds of legal duty to their clients. These are to perform the services for which they were hired and to perform them in accordance with the appropriate standards of conduct. Because of their special skills, professionals are held to a higher standard of conduct.

Professional Liability policies can go by several different names. Malpractice insurance is the term commonly applied to Medical Professional Liability policies written for medical professionals or institutions, including physicians, nurses, dentists, surgeons, opticians, optometrists, chiropractors, and veterinarians.

Errors And Omissions (E&O) insurance is a broad term that refers to Professional Liability policies written for other professionals, such as insurance agents, accountants, architects, stockbrokers, engineers, consultants, and attorneys.

Another type of Professional Liability policy, the Fiduciary Liability policy, protects those who manage private pension and employee benefit plans against liability for violation of the federal ERISA law (the Employee Retirement Income Security Act of 1974). There is also an obligation on the part of the trustees or administrators of a plan to provide a bond to secure the plan against dishonesty on their part or on the part of another person entrusted with or having access to plan assets. Such a dishonesty bond is mandated by federal law and must be in the amount of at least 10% of the plan assets or $500,000, whichever is less. However, Section 412 (a) of Erisa, which sets forth this requirement, exempts U.S. corporations authorized to exercise trust powers or which are subject to examination by the state or federal government.

Fiduciary liability claims have been only about 20% as frequent as D&O (Directors And Officers) claims, and they have been significantly less severe. The most common risks associated with administering pension and welfare plans include:

* denial of benefits * misleading representation * improper advice to employees * improper expenditures

Because Malpractice and Errors And Omissions insurance cover loss arising from professional acts or acts that fall within a professional’s duties, it is extremely important to distinguish between professional and nonprofessional exposures. Unfortunately, courts have not always been consistent in their interpretations. If the insured wants full coverage against liability exposures arising from business, it may be advisable for the insured to maintain both a Commercial General Liability policy and the appropriate Professional Liability policy.

Some professionals believe that settling claims out of court is an admission of an error that may harm their professional reputations. In the past, Professional Liability policies contained a provision that the insurer could not settle a claim without the insured’s consent. Most policies now provide that such consent is not required.

As the frequency and severity of professional liability suits continue to rise, insurance coverage and loss-reduction techniques will become increasingly important to professionals and savings institutions. Today, any savings institution, no matter how small or how closely held, should carefully review its professional liability exposures to make sure it has done all it can to reduce and insure properly against them.

Please note that the precise coverage afforded is subject to the terms, conditions, and exclusions of the policy as issued. This explanation is intended only as a guideline. This information is not intended to be considered investment, tax or legal advice. It is provided, for your education only. This is not an insurance contract. All terms and coverages are defined solely by your policy.

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