Caption Corner Part 12 – The 3 P’s of Insurance
As licensed practitioners, there is no doubt that you should have a professional liability insurance policy to cover you for malpractice, a cyber or data breach insurance policy to insure you for HIPAA violations arising from a third party information breach, and a general liability insurance policy covering your office, fire perils, bodily injury, and third party property.
This month we will continue to discuss some of the most important liability insurance terms that you need to know: Paid Losses, Perils, and Policy Conditions.
These are monies that are paid by the insurance company when incidents that are eligible to become covered claims under the insurance policy, resulting in claims adjudication and subsequent payment. Paid losses include allocated loss adjustment expenses (ALAE). These are largely legal defense fees and associated expenses arising from the covered claim.
Indemnity payments made on behalf of the insured by the insurer are also a loss, but not part of ALAE. Legally speaking, a loss is an injury sustained by the insured, or an injury or damage that the insured is liable for as a consequence of the happening of one or more of the accidents or misfortunes against the insurer, as consideration of the premium, wherein the insurer has undertaken to indemnify the insured under the insurance contract.
An actual loss of insurance is referred to as the total costs directly or indirectly resulting from a claim, and comprise the total payout that the insurance company will pay pursuant to the insurance policy contract. However, the total payout is limited by the defined amounts of limits as defined in the policy called sub-limits and the aggregate limits.
The total payout varies by the allowed frequency of defined claims incidents during the policy term and the severity of the claims. In no case shall the insurance policy pay a loss that exceeds the aggregate limit as stated in the insurance policy contract. Endorsements are available to expand coverage under the insurance policy contract in exchange for an additional premium. These may include additional perils, added insureds, and loss coverage amounts or expanded limits and sub-limits. Generally speaking, the more comprehensive the insurance policy contract is, the higher the premium will be.
Examining insurance policy contract options and comparing coverage for perils is one of the most important elements to consider when shopping for coverage. In other words, identify what is covered and how much you are covered for. These are the causes of loss such as negligence, an accident, a fire, slip and fall, subpoena, deposition, witness testimony, or even a licensing board hearing. They are also referred to as named perils which are risks that the insurance policy indemnifies the insured for. Frequently, there are stated sub-limits and stated limits for certain perils. There are also frequency limits during a policy year for certain perils.
For example, most general liability policies limit coverage for a fire peril to one claim per policy year. The NASW Risk Retention Group’s general liability policy has no frequency limits for fire perils. Most insurers have a deductible in their insurance policies. That means that the insured, YOU, pay the first stated amount of the claim. The NASW Risk Retention Group has no deductibles on any of its products.
There are also excluded perils listed in the insurance policy contract. That is why it is very important for the insured to fully read the insurance policy contract language to understand what is actually covered. Some insurance policy contacts are subjective and unclear.
Moreover, some have proviso clauses that actually reverse or restrict the stated meaning of the coverage. Often times the exclusions are written in a different part of the insurance policy contract, so a gap in coverage may exist that the insured is not aware of. That is why it is imperative that you buy your insurance coverage from a provider who you trust, and who has your best interest at heart. Beware of a commission-driven insurance agency when you buy an insurance policy.
This is the section of the insurance policy that identifies the duties of the insured to qualify and maintain coverage eligibility, and the duties of the insurer to maintain the insurance coverage.
First and foremost, is that the insurer relies on the truthful representations and information provided by the insured at the time of the application for coverage and at the time of renewal. Contract conditions include language that is set forth to include the rules of the insurance policy contract such as loss reporting, fraudulent acts, misrepresentation, legal defense rights, settlement rules, general rights of both parties, policy cancellation, and nonrenewal terms.
Often times, contract parameters include coverage limits, sub-limits, aggregates, and frequency of perils. As an insurance shopper, it is important to read and understand the policy conditions by reading both the insurance policy contract as well as the Declaration page.
Published November 2017