Understanding the Difference Between Claims Made & Reported and Pure Claims Made

Under a claims-made policy, the insured is required to file claims during the policy period or during the extended reporting period (ERP), if applicable. However, there are two distinct types of claims-made policies. One is the “Claims-Made & Reported Form” and the other is the “Pure Claims-Made Form.” While the differences of the policies are subtle, not understanding the differences can have a significant impact on your coverage.

The most commonly used claims-made policy is the “Claims-Made & Reported Form.” This policy requires that not only must the claim be made during the policy period or ERP; it must also be reported during this same period. This means that the insured has a designated time frame within which claims can be filed.

The “Pure Claims-Made” Form is less prevalent. It also requires that a claim be made during the policy period or the ERP. However, the major difference between this and the “Claims-Made & Reported Form” is that under this type of policy, the insured is only required to report the claim as soon as possible. This means that the report of a claim may happen after the policy’s expiration.

If your company’s professional liability policy is a “Claims-Made & Reported Form,” then time is an important factor when a claim needs to be filed. It is your obligation to report a claim or a potential circumstance that could lead to a claim to your carrier within the policy period or the ERP. If you attempt to handle the situation internally to avoid reporting it to your carrier, the delay could negatively affect your coverage. Professional liability polices are very specific as to how and where to report a claim. Failure to comply with these provisions can negate your coverage. The “Pure Claims-Made” policy, on the other hand, only requires that the claim be reported as soon as practical, which allows for more flexibility. This means that the claim can be reported at any time in the future even after the policy expires.

In addition to the issue of claim reporting time, many “Claims-Made & Reported Form” policies have an awareness provision that allows the insured to report any circumstance that may lead to a future claim. Such notice must also be given during the policy period or ERP.

When a circumstance is reported, it’s considered to have been reported during that policy period even if it results in litigation after the policy has expired. Because each policy has a different reporting provision, it is important that you know your policy’s reporting requirement to ensure your coverage remains in effect.

Keep in mind that any extended reporting period provided by the policy only extends the period in which a claim may be reported. The wrongful act that precipitated the claim must have taken place before the policy expired.

The Right Homeowners Insurance Can Be a Homesaver

Homeowner’s insurance is an essential purchase. Mortgage holders require their borrowers to keep this coverage in force while the mortgage has a balance. However, the coverage is just as important for those who own their homes free and clear. Few individuals have sufficient funds to rebuild a destroyed home. For this reason, it is important for homeowners to have the right coverage, not just any coverage. Failure to consider a few factors can leave them with a too-small claim check or even no claim check at all. Probably the most important of these are the amount of insurance on the home and the perils that could possibly damage it.

Insurance industry consulting firm MSB has estimated that as many as two-thirds of American homes are underinsured, by an average 21 percent. This means that a home that would cost $100,000 to rebuild is probably insured for only $79,000. It is important for the insurance limit to reflect building costs in the area, not the prices that homes are selling for. It should also take into account the cost of rebuilding to comply with local codes, the expense of not buying materials in bulk, and any custom features the home has. For a nominal fee, MSB offers an online tool to help homeowners calculate their insurance needs at www.accucoverage.com.

Homeowner’s insurance typically covers damage caused by fire, lightning, vehicles, windstorms, and several other perils, but it does not cover everything. For example, it does not cover damage caused by flooding. Too many people fail to consider this; more than 40 percent of New Orleans homes damaged by Hurricane Katrina lacked flood insurance, and the insured rate was higher there than in other affected areas. Homeowners who live near ponds, creeks, lakes or oceans should give serious consideration to buying flood insurance from the National Flood Insurance Program, and even those who do not live near water should think about it. Officials with the NFIP estimate that one in four flood claims occurs in low- to moderate-risk areas.

Other perils that the policy may not cover include earthquakes, mudslides, mold infestations, and gradual rotting of building components. Homeowners in areas with frequent seismic activity should consider separate coverage for earthquakes and other types of earth movement.

The amount of insurance and the scope of the coverage have a major impact on the policy’s cost, but another influential factor is the deductible — the amount the homeowner pays out of pocket before the company pays. Higher deductibles result in lower premiums because the company is spared the expense of handling small losses that fall below the deductible. Each homeowner must decide the deductible amount that she can comfortably afford. Since homeowners often pay insurance premiums for many years without suffering a loss, the savings from the higher deductible discount may well offset the higher out-of-pocket expense if a loss occurs.

There are several other considerations homeowners have when they buy insurance. Do you have expensive pieces of jewelry, collectibles, musical instruments or artwork? Do you run a business out of your home? Do you or your children own laptop computers? Are you a landlord? Do you own snowmobiles or boats? Operate a home day care center? You may need special coverage for all of these. To identify your coverage needs and determine the cost of insuring them, speak with a qualified insurance agent who insures many homes. She can present options and provide information about the financial strength of companies and their claims handling practices.

Homeowner’s insurance is not just another expense. It is a vital part of a homeowner’s financial plan. Take the time to make certain you have the right coverage at a reasonable cost.

Closing the Coverage Gaps in Your Lawyer’s Professional Liability Insurance Policy

Having gaps in your liability coverage is like venturing out into a snowstorm without an overcoat. In either case, it’s tough to succeed without protection. Before purchasing any insurance policy, you need to fully understand the basic structure of the contract in terms of what’s covered and not covered.

In general, liability policies are written as “claims-made” policies; that is, the claim for a wrongful act, error or omission must be made and reported to the carrier while the policy is in effect. This means that should your current insurance policy terminate for any reason, such as the insurer refusing to renew or your firm allowing the policy to lapse while shopping for new coverage, any wrongful acts occurring during this gap between the expiration of the old policy and the start date of the new one will not be covered unless you have either “prior acts coverage” or “extended reporting endorsements.”

The first of these, “prior acts coverage” is written into your new policy.  This allows for all incidents leading to claims after your former policy expired to be covered regardless of when they happened provided the coverage is written without a time limitation. There is generally a surcharge for this unlimited coverage based upon how many previous years you want covered. A carrier will not always write this type of “full prior acts” coverage even if you agree to the surcharge. For example, a carrier may refuse because information on your application indicates a high level of risk. Another alternative may be that the carrier provides full coverage, but only within a more restrictive policy. The carrier may also elect to provide prior acts coverage but with the stipulation that coverage would not be in effect under certain circumstances, such as a claim in which the firm knew of the wrongful act, error or omission or should reasonably have know about it prior to the start date of the policy.

Adding “extended reporting endorsements” or “tail” coverage to your current liability policy allows you to make and report claims for prior wrongful acts, errors or omissions after the policy has expired for a specific period of time. There are several instances when this type of coverage is critical. The first is when the insured is changing carriers and “prior acts coverage” is not available or is too restrictive in scope. Secondly, this coverage is even more important when the carrier change is necessitated by the insurer’s refusal to renew coverage and your law firm doesn’t have an alternative yet. There is an additional surcharge for extended reporting coverage.

The other scenario in which this coverage is vital is when a lawyer is no longer actively practicing. When an attorney retires, becomes a judge, or goes from private practice to in-house counsel, the exposures that may arise from the former practice can be covered by “extended reporting endorsements.”

The time to determine what kind of extended reporting your policy provides is before you purchase. Each carrier determines how long an extended period they will provide, under what conditions this coverage can be purchased, and the cost for such an endorsement. In some cases, the coverage is sold in multiples of the policy premium; while in other cases, the cost is the rate that is in effect at the time the endorsement is purchased. 

Finding the Best Home Contractor for the Job

Let’s say you’re about to take on a house project, whether it’s a major kitchen renovation or a simple painting job, and you decide to hire a contractor. So, you flip through the phone book and call the first number you see listed under “Kitchen Remodeling” or “Painters.” Not so fast.

Many homeowners don’t realize that they are taking a huge risk when they hire just any contractor off the street. If you don’t do your homework, you could be exposing yourself to massive amounts of liability. What if a painter falls off his ladder and badly injures his back while painting your living room? What if a kitchen contractor hits a pipe and floods your home? Who will cover the lofty expenses associated with these types of accidents?

The thought of such a home improvement catastrophe is enough to send chills down any homeowner’s spine. This is why it’s so important to hire only licensed, insured, highly experienced contractors to work on your house project-no matter how big or small the job may be.

Here are a few rules of thumb for hiring a reliable contractor and limiting your liability:

Ask for recommendations

One of the best ways to find a dependable contractor is simply to ask your friends, family members, co-workers and neighbors. Ask everyone you know and trust if they can suggest a reputable contractor who did exceptional work for them. More than likely, if a friend was happy with a contractor, you will be too.

Avoid solicitors

Steer clear of contractors who go door-to-door or make cold calls in search of work. The best, most reliable contractors don’t have to resort to such solicitations.

Don’t fall for “limited time” offers

If a contractor quotes you a “limited time” project price that will increase if you don’t hire him immediately, run like the wind. This can be a sign that the contractor is dishonest or illegitimate.

Get it in writing

Don’t settle for verbal agreements. Request a written estimate that includes a detailed breakdown of the project costs, including materials and labor fees.

Verify, verify, verify

Before you hire any contractor, make sure that they are licensed, bonded and insured-and don’t just take their word for it. Verify all of this by asking for certificates of insurance for workers’ compensation as well as info on their general liability policies. If the contractor working on your home plans to use subcontractors, be sure to ask for the certificates for those subcontractors as well.

Read the fine print

Before the contractor begins work on your house project, request a copy of the proposed contract. Read all of the fine print and make sure all the terms are fair and reasonable. The contract should clearly establish an independent contractor relationship. It should also include a “hold harmless clause” in your favor, especially if the contractor is doing major work that involves heavy equipment (such as installing a swimming pool or adding a room to your house.) A hold harmless clause ensures that the contractor will cover any expenses associated with members of the public who are injured or whose property is damaged during the project.

Check with the Better Business Bureau

If you’re still not sure, contact the Better Business Bureau for more information. They can tell you if any consumers have filed complaints against the contractor. Visit the bureau’s website at www.bbb.org.

Does Your Insurance Cover What You Agreed to in That Contract?

Most construction projects involve written contracts. A contractor signs a contract with the project owner, with the general contractor, or with a subcontractor on the project. The contract normally spells out the obligations of the contractor regarding, among other things, the insurance the contractor must carry and liability that he will assume. Construction contracts often contain “indemnification” agreements under which the contractor agrees to assume some of the owner’s or general contractor’s liability for accidents that occur during the project. Should something happen, will the contractor’s general liability insurance policy pay for the damages he assumed?

The policy is probably similar to the Insurance Services Office’s Commercial General Liability Coverage Form. This form covers the injury or damage for which the insured is liable because he assumed liability in an “insured contract” executed prior to the accident. It also covers attorney fees and other litigation expenses to defend the owner or GC if the contractor agreed to assume those costs in the contract. By an insured contract, the form means:

  • A lease of premises
  • A sidetrack agreement with a railroad
  • An easement or license agreement
  • An indemnification agreement with a municipality
  • An elevator maintenance agreement
  • Other business contracts

Contractors are mainly concerned with these “other” business contracts, as construction contracts fall into this category. The general liability form covers the tort liability of one party assumed by another. This means that, for coverage to apply, the first party must have some legal responsibility for injury or damage suffered by someone else.

For example, assume GC hires SC to run the cabling in an office building GC is constructing. GC and SC sign a contract in which SC agrees to assume GC’s liability for injuries and damage SC may cause during the project. One of SC’s employees trips over a toolbox that was resting on a ladder, and the falling tools injure an employee of another contractor on the job. The injured employee sues both GC and SC for medical costs and pain and suffering. Because SC agreed to assume GC’s liability for injury or damage suffered by a third party (GC’s tort liability), the contract qualifies as an insured contract. SC’s liability insurance will cover GC’s liability and provide legal defense for GC.

The insurance will not cover all of a GC’s tort liability, however. A third party must suffer bodily injury or property damage before coverage will apply. Suppose GC turns the completed building over to the owner, and the owner finds that computer networks do not work in four offices. The owner determines that the problem is the result of faulty cabling, and he sues GC and SC. Even though SC has agreed to assume GC’s liability, the liability insurance will not cover this loss. That is because the building owner did not suffer property damage. The building is defective, but it has not been damaged.

Contractors should expect to find indemnification agreements in most construction contracts. Because of this, the contractual liability coverage contained in general liability insurance policies is critical to their financial health. It is very important for contractors to review their liability policies to ensure that their insurance companies have not limited this coverage.

Contractual liability coverage is vital to a contractor’s business. Make sure that it does all that you need it to do.

AAA Study Shows After School Hours Dangerous for Teen Drivers

Parents have always been concerned about their teenagers driving on the weekend, especially at night. However, a new AAA study of crash data reveals that after school hours can be as deadly for teenage drivers as weekend nights. The researchers advise parents that they need to be just as vigilant about monitoring their teens’ driving on weekday afternoons as they are on weekend nights. 

The researchers studied the number of fatal crashes involving teenage drivers between 2002 and 2005. What they discovered is that almost as many 16 and 17-year-old drivers were involved in fatal crashes between 3 and 5 p.m. Monday through Friday as were on Friday and Saturday nights between 9 p.m. and 2 a.m. There were 1,100 weekday crashes and 1,237 weekend crashes.

To combat this growing problem, the AAA recommends that parents do the following:

·  Establish specific driving rules with your teen. If they follow the rules, they will be permitted to increase their amount of driving time. Breaking the rules leads to fewer liberties. Parents can find a parent-teen driver agreement at http://www.aaa.com/publicaffairs.

·  Don’t allow a new teen driver to carry passengers during the first three months of driving. Allow them to carry no more than one passenger for the rest of the first year of independent driving. Crash rates increase drastically for 16 and 17-year-old drivers as you add more teenage passengers to a car. Thirty-five states limit passengers for new teen drivers. Every parent should do the same, regardless of state law.

·  Don’t permit your teen to ride with a new teen driver. Carpooling seems like a sensible way for teens to ride to school, home and activities, but it can promote risky passenger behavior. Research shows that it is more dangerous for several teens to ride in one car than for them to drive individually.

·  Ban cell phone usage while driving. Teens have trouble managing distractions, especially while driving.

·  Require your teen to wear a seat belt every time s/he rides in a car. Teens have the lowest belt usage rate of any age group, even though new teen drivers have the highest crash rates.

·  Make your rules known to other adults in your teen’s life. A parent-to-parent agreement with your teen driver’s friends will standardize rules among a group of teenagers. Letting your neighbors know your teen’s driving rules can provide you extra sets of eyes when you’re not around. You can also find a parent-to-parent agreement at http://www.aaa.com/publicaffairs.

Protect Your Company from Nuisance Lawsuits

A March 2007 study from the Pacific Research Institute titled Jackpot Justice: The True Cost of America’s Tort System, stated that lawsuits in the U.S. cost the American Public an estimated $865 billion dollars per year. Much of this litigation was needless or stemmed from nuisance lawsuits which could have been largely avoided. In these litigious times, business owners need to sit down and analyze their risk exposure.

Here are 6 proactive steps that every business owner can implement to reduce their liability resulting from nuisance lawsuits:

  • Form an asset protection plan by designing a list of all the potential assets you stand to lose from a lawsuit. Take a hard look at your current insurance coverage. Make a point to sit down with both your insurance agent and lawyer to limit your exposure from both an insurance and legal perspective.
  • Separate your personal assets from business assets by setting up a C or S corporation or else consider a Limited Liability partnership or even a Limited Liability company. Although this action does nothing to limit lawsuits, you may be able to remove your personal assets from a lawsuit settlement. Consider setting up a qualified retirement plan as federal laws offer protection from creditors for such accounts. However, remember that some states may not include IRA’s so seek qualified advice.
  • Purchase the right liability insurance for your business as this can be the best investment you can make. Seriously consider buying excess or umbrella coverage as you can easily get additional $1,000,000 coverage for a very cheap rate. Today, almost every business which has employees should seriously consider Employment Practices Liability Coverage (EPL) This form of insurance covers current employees, past employees, potential employees, customers or clients from employment related civil actions of discrimination such as gender, age, race or disability, sexual harassment litigation, wrongful dismissal actions, breach of contract, retaliation and other claims brought against your company. Due to the significant rise in such claims, this relatively new insurance coverage has taken on significant importance for companies of any size in recent years.
  • Form your own risk management plan to eliminate unnecessary risk in your workplace. Be proactive in the house cleaning for your company and eliminate hazards by performing repairs or maintenance as they arise. Instill strict and enforceable policies to protect the safety of workers and the public from harmful situations that can quickly translate into a needless lawsuit.
  • Specify your policies to clarify everything and anything that could result in a lawsuit. An employee handbook should be issued to all staff. Have them read the handbook before they start work and sign an appropriate form stating they have read and understood the material. Ensure any policies directed to your customers or general public are clearly visible and explicit. Incorporate your customer policies in all your promotional material. Don’t trip yourself up by making promises which can’t be kept. Train all your staff so they clearly understand any policies which apply to customers or other relevant third parties.
  • Consider taping phone conversations so you have a record of what your caller is inquiring or complaining about. This also provides you with a record of how staff are responding or stating to the caller. Remember that if you decide to take this approach, you must initiate the call with a notice that the call is being recorded. Clear this with your legal advisor first.

These are but a few simple steps that any company can take to reduce their liability exposure from a host of costly yet nuisance lawsuits.

Thirteen Vehicles Named to The Insurance Institute for Highway Safety List of Safest Vehicles

Thirteen vehicles, including four cars, seven SUVs, and two minivans, earned The Insurance Institute for Highway Safety’s Top Safety Pick awards for 2007. The award is given to vehicles that best protect people in front, side, and rear crashes based on ratings in Institute tests. Winners are also required to be equipped with electronic stability control. Honda and Subaru each manufacture three of the 13 winning vehicles.

The complete list of winners for 2007 include:

·   Large car: Audi A6 manufactured Dec. 2006 and after

·   Midsize cars: Audi A4, Saab 9-3, Subaru Legacy equipped with optional electronic stability control

·   Minivans: Hyundai Entourage, Kia Sedona

·   Luxury SUVs: Mercedes M class, Volvo XC90

·   Midsize SUVs: Acura RDX, Honda Pilot, Subaru B9 Tribeca

·   Small SUVs: Honda CR-V, Subaru Forester equipped with optional electronic stability control

Pickups were not included in this round of awards because the Institute hasn’t begun to evaluate their side crashworthiness.

The Institute ratings of good, acceptable, marginal, or poor are based on each vehicle’s performance in high-speed front and side crash tests. Consideration is also provided for how well seat/head restraints protect passengers against neck injuries during rear impacts. For a vehicle to become a top pick it must obtain at least good ratings in all three of these tests.

A new electronic stability control requirement was added for 2007. This requirement was added because Institute research found that electronic stability control greatly reduces crash potential by helping drivers stay in control during emergency maneuvers. Single-vehicle crashes in general were reduced 40 percent with the addition of this feature. Fatal single-vehicle crashes declined 56 percent, and fatal rollovers decreased by nearly 80 percent.

Some manufacturers improved their vehicles specifically to earn the awards. The Institute noted that Audi redesigned the seat/head restraints in the A4 and A6 to improve performance in the rear impact test and Subaru stepped up its plans to offer electronic stability control on some versions of the Forester and Legacy in order to meet the new requirement.

Other vehicles are also in the process of being changed to make them eligible for an award. Ford will add electronic stability control to 2008 Freestyles. Most automakers have added standard side airbags with head protection, even though government regulations don’t require them yet. All 2007 winners have standard side airbags.

Seventeen other vehicles would have won awards with better seat/head restraint designs. Toyota would have earned nine awards, including three Lexus winners. Honda could have added four more awards, including one for an Acura. The Institute stated that rear crash protection is a safety area in which many automakers lag behind.