Professional Consultants can be sued long after the work is completed, and can be found liable even though they may no longer be consulting, even if they sold their business or retired. If a covered incident occurs during the time period when your insurance is in effect, do you want to be sure that it will be covered regardless of when the claim is filed? If you purchase the right kind of liability policy, you will have the comfort of knowing that your risk will be covered long after your policy expires.
It is also important to understand critical differences between a Master Policy and an Individual Policy before you buy liability insurance for yourself or your business. To avoid the pitfalls and preserve your coverage, you must carefully analyze and understand the policy language defining claims and notice and reporting requirements. This article will help you understand the drawbacks inherent in some policies and explain the best practices to preserve your coverage and minimize coverage disputes. It is far too easy to end up with inadequate liability coverage by just picking a policy that offers cheaper premiums. If you are not sure about your current policy or are considering purchasing a new policy, this article should answer your questions, and you are welcome to call me for more information.
Occurrence Forms vs. Claims-Made Policies
First, make sure your policy is written on Occurrence Forms and not a Claims-Made policy.
Business insurance policies are often offered in two forms. One is the Claims-Made policy and the other is the Occurrence Forms policy. Before agreeing to purchase business insurance, you should understand the differences between the two types of policies.
Claims-Made policies provide coverage for claims made in the period the policy is in force. Claims-Made policies provide coverage only so long as the insured continues to pay premiums for the initial policy and any subsequent renewals. Once premiums stop the coverage stops for any claims not yet known or made to the insurance company during the coverage period.
What this means to the business owner is that there is a risk of an unknown or unreported claim being made long after the policy period is over, and it not being covered because the claim was made outside of the coverage period.
To continue coverage after the coverage period, the business owner must purchase a "tail". Tail coverage (or an Extended Reporting Endorsement) is an endorsement that extends the claims reporting period after the policy has ended. Tail coverage must be purchased to continue any risk protection afforded under the policy. Tail coverage can be expensive and can prove to be an unaffordable expense when winding down.
An Occurrence policy protects you against incidents that occur while the policy is in force, regardless of when the claim is reported.
Here is an example: Let's say that you purchased an Occurrence policy in 2000, and discontinued the policy in 2007. A Claimant you were following (on surveillance) in 2005 files an Invasion of Privacy claim against you now. Because the claim occurred while the policy was in force, you're able to report the claim now for that 2005 incident.
An Occurrence policy automatically protects you both now and in the future for any incidents that occurred while you were a policyholder.
Just think --this means that you can report claims:
- During the current policy year, and
- After your policy has ended.
The premium cost: Claims-Made policies are much cheaper than Occurrence policies. The premium difference can be as much as 35-50%.
The coverage amount: Under an Occurrence policy, coverage is the amount of coverage under the policy in the year of the occurrence. This means that, while you have coverage, it will probably be lower than your current limits. Coverage limits carried in the past are usually lower than current coverage limits because they do not take into account inflation, claims costs, and the growth of your business. A Claims-Made policy covers you at the level of insurance you have when the claim is made.
Master Policies vs. Individual Policies
An Individual Policy covers only one person or one company (and its employees). The person or company purchases the policy themselves from an insurance broker.
With a Master Policy, a number of individuals with at least one shared characteristic band together and collectively purchase a single policy. To obtain the insurance, you may be required to belong to an association and pay a fee to join. The association retains the Master Insurance Policy, which covers the people who belong to the association. The Master Policy General Liability Insurance serves as the model for the policy covering each member of the association. Generally, the insurance company charges fees based on the demographic composition of the group, rather than each individual's characteristics.
In some cases the cost of insurance under a Master Policy plan is lower than for individual policies due to lower acquisition and administrative expenses. However, certain conditions can cause nasty surprises.
Drawbacks of Master Policies:
- The association can cancel the Master Policy at any renewal time, leaving the group association members uninsured.
- Should a large claim be submitted to the association holding the Master Policy, the insurance company could cancel the Master Policy, leaving the members without insurance coverage.
- Although some Master policies do offer per-member limits endorsements, other Master policies have a cap on the liability limits they will pay out on claims for the entire association. In some cases we have seen the total liability capped at as little as $5,000,000 for the association and its members. Just think, if five members each file a claim for $1,000,000, then the entire association would have no more coverage.
Commercial General Liability
The Commercial General Liability (CGL) policy is a modular policy that can simultaneously provide several types of coverage: bodily injury and property damage liability; personal injury and advertising injury liability; medical payments; and (as applicable) products / completed operations coverage. Coverage is provided for most of the premises, products, completed operations, personal injury, advertising, and contractual liability exposures of an organization. The CGL offers very broad coverage that can be narrowed by endorsement when necessary.
Errors and Omissions
Errors and Omissions (E&O) insurance provides coverage for damages arising out of the insured's negligence, mistakes, or failure to take appropriate action in the performance of business or professional duties. The coverage frequently carries a high deductible ($1,000 or more) and usually does not require the insured's consent to settle claims (unlike professional liability insurance - a term sometimes used interchangeably with errors and omissions). There are a wide variety of errors and omissions coverage forms including those designed specifically for Private investigators, Security Consultants and Low Profile Executive Protection.
Excess Liability insurance coverage is written in "excess" of primary insurance. It is intended to increase the total limits of liability, providing a form of catastrophe coverage. Excess liability coverage does not respond to a loss until the amount of the loss exhausts or exceeds the policy limits of any existing primary policies. For example, consider if a primary liability policy with a limit of $1 million is written, and excess insurance is written for $3 million excess of the primary. The primary policy would pay all losses within $1 million and the excess policy would pay losses in excess of the primary coverage, up to the excess policy limit of $3 million.
Insurance brokers negotiate policy terms, underwriting conditions and premium pricing and are responsible for delivering, explaining and analyzing insurance company quotations and proposals. Good insurance brokers will design programs that meet your individual needs and buying style as well as your appetite for risk. This should be a very individualized process, as "one size" does not fit all.
If you are an ex-FBI or Federal Agent offering investigative services, security consulting, forensic investigative services or professional advice, you should consider investing in General Liability with Errors and Omissions (E&O) insurance. Please consider an individual policy, not a master policy. Furthermore, it's important to choose an insurance broker who understands your business.
Bill West, founder of AMIS/Alliance Marketing & Insurance Services is a former private investigator, insurance adjuster, and third-party administrator. He worked as an independent for the California Highway Patrol handling claims and other matters for 18 years. Bill has put together a General Liability policy with E&O that he has offered for the past 21 years. This is written on occurrence forms and is an individual policy.
His policy includes the following coverage:
Our agency is one of the largest writers of Private Investigators and Insurance Adjusters insurance in the United States. We currently handle the insurance for several hundred ex-FBI and Federal Agents in 48 states. We also write for the NFL Security Consultants, most of whom are ex-FBI agents. We hope you will be our next client! Please call -- we'd love to answer your questions.