Monday, April 5, 2010

Your skill is what can get you into trouble!

During an economic downturn, especially a protracted one such as we are in now, many individuals turn to working from home as the new means of employment. In fact many companies will "down size" only to hire back an employee as a contractor to do the same work they were doing as an employee. This new "self-employed" status for individuals can create a range of new exposures to loss that may be missed without careful consideration.

The new exposures now faced with this "home-based" business include:

  • Property - some coverage can be found on the Homeowners (HO)policy but the amount can vary significantly from carrier to carrier. Also specialized coverage for computers, software, loss of income, valuable papers & records, etc; are virtually non-existent on a traditional HO policy.

  • General Liability - coverage for Bodily Injury (BI) & Property Damage (PD) related to the business can be endorsed on a LIMITED basis on a traditional HO policy. However it is usually only for on-premises (the home only) and fairly restricted in the types of business operations it will allow. No coverage for Advertising injury (libel, slander, copyright infringement, etc) is afforded either.

  • Professional Liability - This is by far the most likely area of exposure for a self-employed professional and for which there is NO coverage available on the HO policy .

It is this Professional Liability exposure I would like to address in greater detail. As a "Professional" or "Expert" you are typically being hired for your knowledge or skill in a given area. The subsequent advice or services you provide based on that expertise is what the client will in turn make decisions on. These decisions will have financial ramifications on the client's own business, and the results of those ramifications are your biggest exposure, especially if they are negative to the client's bottom line.

The damages your professional expertise may cause to a client is what you need to protect yourself from. More importantly it is the mere accusation of harm that can cost you tens of thousands of dollars in defending yourself from. You may be entirely blameless from having caused any financial harm to the client, but you still have a long and expensive road to go down in order to exonerate yourself and your reputation.

A Professional Liability (PL) policy, sometimes referred to as and Errors & Omissions policy, is your best protection from claims of negligence on behalf of clients who feel you provided faulty or unsound advice or services. The policy is fairly customized around the type of services you are providing. Often times it can be tailored to very specific types of work and are usually written with Insurance Companies well versed in your area of expertise. You want to be sure you choose coverage with knowledgeable insurers so that you can avail yourself of their legal and loss control experts should the need arise.

The PL policy is not a license to be reckless. You want to have good risk management strategies to help mitigate your exposure to claims from a disgruntled client. A critical component of risk management for the professional is a solid contract that clearly spells out the terms, conditions and expectations of the services to be provided. A contract is not a firewall against litigation, but may be an important piece of your defense. You should work with a good attorney who is knowledgeable about your business and where potential litigation arises from. Your contract will be the 1st line of defense should an issue arise.

When comparing coverage between insurance companies you should proceed carefully. There is no standardization between coverage forms of the various insurance companies that provide PL coverage. It is important to work with an Independent Insurance Agent to help you navigate through the various offerings to determine which policy is providing you with the best coverage for your premium dollars. Some things to look out for include:

  • Defense Costs- Are they included in the coverage limit or outside the limit of liability?

  • Deductible - Is it applicable to defense cost, damages or both?

  • Definition of covered services - Does it clearly define what you are doing as covered?

  • Territory of coverage - is it United States and territories, or is it world wide.

  • Coverage basis - Is coverage on a "Claims-Made" or "Occurrence" basis.

These are just some of the aspects of the coverage you should be cognizant of when procuring a PL policy for coverage Make sure you avail yourself of the knowledge and skill of your independent agent when looking in to this vital coverage for your business. After all you are hired for your expertise and skill, you should trust in theirs.

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