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Vol. 6, Iss. 9
December 13, 2017

Big News From ISO: The Organization Files A Professional Liability Policy

Is A Standard Professional Liability Form Finally Here?

The annual Top 10 coverage cases involves the most significant coverage decisions. By this, they are almost always the kind made by judges. But there can be other kinds of decisions that affect coverage. And ISO’s decision, to file for a standard form Professional Liability policy, is one of the year’s ten most significant. While its impact on claims is a long ways away, the first step down that road had to be taken at some time. [Truth be told, I’m not certain when the ISO filing was actually made. But I believe that the policy was intended to be effective in 2017. So I included it here. If I’m wrong I’ll send you back your subscription price.]

One of the hallmarks of commercial general liability insurance is that it is provided by insurers with relatively consistent terms. Whether insurers use ISO’s stalwart CG 00 01 form, or something similar, you can be pretty certain that the potential for coverage is based on “bodily injury” or “property damage,” that takes place during the policy period, and was caused by an “occurrence,” defined as an accident (you know the rest). You can also be confident when it comes to a CGL policy that the duty to defend will only attached to a “suit,” defense costs will be supplemental to limits, there will be relatively predictable exclusions, coverage is provided on a primary basis, subject to certain exceptions, and notice of a claim must be provided as soon as practicable.

Of course there are sometimes exceptions to all of these and each CGL policy likely has loads of endorsements that are much less predictable than the terms and conditions. But, despite all this, I’ll stick with my first line -- one of the hallmarks of commercial general liability insurance is that it is provided by insurers with relatively consistent terms.

While CGL policies have enjoyed this similarity in terms, the same cannot be said about professional liability policies. These policies are not subject to a stand form, ala CG 00 01. As a result, professional liability policies have always resembled a box of chocolates. And some of what you get inside can vary widely. Professional liability policies can differ in their all-important “claims made and reporting” terms, as well as key definitions, such as “claim,” “damages” and “wrongful act.” And exclusions in professional liability policies can resemble the largest of all Whitman’s Samplers.

Because of the consistency in CGL terms, it is often an apples to apples comparison when using case law as guidance to address coverage. However, the lack of consistency is professional liability terms can make resort to case law less effective and more challenging. The need to distinguish policy terms – between what’s in the cases and what’s before you -- is often in play.

But the table has now been set for professional liability policies to offer the same consistency in terms that CGL policies have long enjoyed. ISO has filed a Miscellaneous Professional Liability Policy, along with a boatload of endorsements, including some that are tailored to specific professional services, including life coaching, photography, salons, translators and travel agents.

Given the comfort that so many insurers have with using ISO’s CGL form, it is not unreasonable that there would also be wide-spread take-up by insurers of ISO’s professional liability form. If this happens, analyzing case law regarding professional liability policies would resemble the process that exists for CGL Policies. All of this is a long ways away from happening, as the ISO form would need to achieve wide-spread use, and then time would be required for case law to develop in bulk. But thanks to ISO’s filing, this possibility at least exists.

Some of the provisions in ISO’s Miscellaneous Professional Liability Policy will likely be difficult for insurers to accept. Likewise, insureds and brokers, who are in the know, may not be willing to purchase a policy that contains some of the ISO provisions. Here is a look at a few of the key provisions of ISO’s Miscellaneous Professional Liability Policy:

Reporting: The policy is “claims made and reported.” Thus, the claim must be first made during the policy period and reported to the insurer within the policy period, as soon as practicable, but in no event later than 60 days after the end of the policy period. The extra 60 days to report offers an edge to insureds. But the “as soon as practicable” requirement can benefit insurers, in the event of delayed notice that is still within the required term, assuming the provision is not interpreted to require prejudice. This is where a battle-ground is likely to lie.

However, despite this notice of “claim” provision, the policy also mandates that notice of circumstances, potentially involving a wrongful act, that could reasonably be expected to give rise to a claim, be given to the insurer as soon as practicable. If done, any subsequent related claim will be deemed to have been made at the time of the notice of the potential claim.

However, establishing “notice of circumstances” can be very fact-based and often requires getting into the insured’s head, i.e., whether the insured knew that a circumstance could reasonably be expected to give rise to a claim. By making “notice of circumstances” mandatory, and not optional, it seems that there is a high probability of notice disputes, especially since a formal “claim” does not usually come out of the blue, without the insured having had some sense of it. Did that sense trigger the insured’s notice of circumstances obligation? Courts will be kept busy.

Duty to Defend: The duty to defend applies to “claims” and not just suits. The definition of “claim” includes a demand for monetary or nonmonetary relief, including injunctive relief. Translation: the insurer has a duty to defend “demand letters” (as well as suits seeking nonmonetary relief). Hiring lawyers at the demand letter stage may be an obligation that some insurers are just not willing to take on.

Consent to Settle: The insurer will not enter into a settlement without the insured’s consent. While this is not uncommon in some types of professional liability policies, especially medical malpractice, it is unusual to see it in a policy that covers all professionals. If consent to settle is not provided, then a hammer clause – with an unusual aspect -- kicks in. The insurer is only liable for the amount it could have settled for, defense costs up to the date of the insured’s refusal, 50% of defense costs after the date of refusal to settle and 50% of damages in excess of the refused settlement.

Wrongful Act: The Policy’s definition of “wrongful act” is an actual or alleged act, error, misstatement, misleading statement, omission, neglect or breach of duty. By not limiting wrongful acts to “negligent acts,” the policy is more likely to apply to intentional conduct. This is especially so since the exclusion titled “Fraudulent, Criminal, Malicious, Dishonest or Intentional Acts” does not in fact include “intentional acts” in its text. This exclusion also does not apply to the duty to defend until there has been a final, non-appealable judgment or adjudication that establishes such conduct. All in all, based on these provisions, insurers will likely find themselves defending some bad conduct.

Choice of Counsel: The Policy gives the insured the right to select counsel. [I believe that an insurer would have a difficult time enforcing this provision, in a state where case law would afford the insured the right to independent counsel.]

Defense Costs: The limit of liability is reduced by defense costs.

Coverage Enhancements: The policy includes sub-limits for defense of disciplinary and licensing proceedings and subpoena assistance.

Punitive Damages: The policy’s definition of “damages” excludes amounts that are uninsurable under applicable law.

Exclusions: Some of the Policy’s exclusions are: abuse or molestation; breach of contract; bodily injury (including emotional injury), property damage and the CGL personal injury offenses; insured versus insured; intellectual property; and disclosure of confidential information (data breach).

Other Insurance: The policy is written on an excess basis.

There is a lot more to ISO’s Miscellaneous Professional Liability Policy. But these are some of the highlights.

Given ISO’s strong reputation, my money is on the organization’s Professional Liability form to achieve wide-spread use. But because it’s a significant decision for insurers, it will likely take time for this to happen. It is inherent in any terms and conditions form that some provisions will benefit insurers more than insureds and vice-versa. It would not surprising to see some insurers adopt the ISO form and then use endorsements, both to limit their exposure and, for competitive reasons, expand it.

Analyzing case law, addressing professional liability policies, has always been challenging because of the apples to oranges situation created by the lack of consistency in policy terms. I applaud ISO for taking the first step in addressing this situation.


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