Is Professional Liability Insurance faster than a speeding bullet? Probably not. But it may be as powerful as a locomotive, at least as far as negligence claims are concerned. For example, Professional Liability can come to your rescue if a client claims you…
- Made mistakes.
- Missed key information.
- Failed to deliver promised services.
- Didn’t meet professional standards.
Negligence allegations like these can hurt your business – which is one good reason to have Professional Liability coverage. However, this policy is time sensitive, so to keep your business protected, it's important to know how the coverage works.
Why Timing Matters in Professional Liability Claims
Imagine you’re between jobs and decide to pick up some freelance work to make ends meet. Because you’re a responsible person, you also pick up a Professional Liability policy to make sure a lawsuit doesn’t drain your already dwindling bank account. You complete a couple projects, but when you’re finally hired full time, you decide to drop your insurance.
Unfortunately, that may be a mistake. If your former client sues you over professional negligence, chances are your provider won’t cover it.
Here's why: Professional Liability Insurance is usually sold as a “claims-made” policy. In order for the policy to cover a claim, the following two statements must be true:
- The policy was in force both when the alleged incident occurred.
- The policy is still in force when the claim is made.
Think about this in terms of the example above. When you cancel your Professional Liability coverage, the policy is no longer in force. The work that generated the accusations of negligence happened when you were insured, but the claim showed up after the policy term. Therefore, the claim is not covered.
Get more details in the blog post “What Is Claims-Made Coverage?”
2 Ways to Stretch Your Professional Liability Coverage
Because Professional Liability Insurance is claims-made coverage, continuity is essential. Many policies cover incidents as long you maintain coverage between the incident and the claim. For example, if an incident happens a day before your policy ends but you renew it, you will most likely still have coverage when the claim is filed.
That’s great if you plan to renew, but let's say you want to cancel because you’re…
- Changing insurance companies.
- Closing the business.
- Switching careers.
In these situations, you want to pay attention to your policy’s…
- Retroactive date. Professional Liability insurers often add a retroactive date on policies to cover the time prior to the start of coverage. For instance, if your policy goes into effect on March 1, 2017, it may have a March 1, 2016 retroactive date. That means an incident that occurs in the time between those two dates may still be covered.
- Tail coverage. Tail coverage is also called an "extended reporting provision," which means your insurer may cover claims made after the policy expires.
Neither provision is automatically part of your Professional Liability coverage, so be sure to talk to your agent about your options.
With Professional Liability Insurance, timing is everything. A delay in reporting may cause your claim to be denied. Get tips for reporting an incident in “6 Simple Steps to Make a Claim on Your Professional Liability Insurance Policy.”
This post is part of an ongoing series on how small-business owners can navigate the professional liability claims process as smoothly as possible. Stayed tuned for upcoming posts about filing, preventing, and defending professional liability claims.