Glossary of Professional Liability Insurance Terms

 

Aggregate Deductible
Deductibles may be either “per claim” or “aggregate”.  With a “per claim” deductible your deductible will apply to each and every claim.  With the annual aggregate deductible feature, the insured's exposure for deductible expenses is capped at a specific amount. As soon as one, or more, claim/s erode the deductible amount, the carrier then pays loss and expenses up to the policy limit.  

 

Broker of Record Letter (BOR)
A letter executed by an insured appointing a new broker. This letter is usually addressed to the insurance carrier with a copy to both the incumbent and newly appointed broker.

 

Co-Pay(ment)/Co-insurance Obligation
The amount the insured pays in addition to the deductible of any judgment or settlement. This co-payment is usually a percentage of the loss and can apply differently depending upon the type of coverage involved.

 

Defense Costs
The costs associated with the defense of a claim against the firm. In most policy forms, defense costs are part of and not in addition to the limits of liability. In other words, defense costs erode the available limit of liability that are available to pay actual damages.  Defense cost may include attorney fees, investigation, etc.

 

Defense Costs In Addition or Outside the Limit of Liability
Sometimes referred to as Claim Expenses Outside the Limit (CEOL).  Costs to defend a claim do not reduce the limit of liability and are paid above and beyond the policy limits.

 

Defense Costs Inside the Limit of Liability
Sometimes referred to as Claim Expenses Inside the Limit (CEIL).  Costs to defend a claim reduce the limit of liability that will be left to pay actual damages.

 

Directors' and Officers' Liability Insurance (D&O)

Under common law the director owes the fiduciary duties of diligence, loyalty, and obedience to the corporation and its shareholders.  D&O insurance protects an individual serving in this capacity against claims for allegations of failing to perform within their directed capacity.

 

Disciplinary Coverage
This feature can provide for a sub-limit (oftentimes $5,000 or $10,000) to pay for the defense of an insured during a disciplinary proceeding. Usually the deductible does not apply to disciplinary defense coverage and such limits may not erode the overall policy limits. Policies vary greatly in regard to this feature.

 

Employment Practices Liability Insurance (EPLI)

EPLI protects businesses against legal defense expenses and damages resulting from wrongful employment practices including discrimination, sexual harassment, wrongful termination and other related workplace issues.
 

Employee Dishonesty Insurance

Sometimes referred to as a Fidelity Bond.  This insurance protects the employer from financial loss due to the fraudulent activities of an employee or group of employees. The loss can be the result of the employee’s theft of money, securities or other property of the employer.  Policies may be extended to provide “crime coverage” for non-employees.

 

ERISA Bond

An ERISA Bond protects plan assets from dishonest acts of those who handle the plan.  ERISA requires that each fiduciary of employee benefit plan be bonded. Each ERISA (Fidelity Bond) must meet the following criteria: 

• The bond must be equal to 10 percent of the plans assets at the start of the plans fiscal year not less than $1,000 and not greater than $500,000 ($1,000,000 for companies that offer company stock)

• If more than one plan is covered under a single bond, the bond must allow for recovery by each plan in the amount that would be required if an individual bond was purchased.

• The bond must cover the plan against loss of assets due to fraud or dishonesty on the part of a plan administrator, trustee, officer, or employee.

• The bond must provide coverage from first dollar. No deductibles are permitted

Extended Reporting Period (ERP)
Also referred to as "tail" coverage.  This feature extends the period in which a claim may be made for work done that was performed prior to the expiration date of coverage. There is an additional premium charged for this benefit and the time periods for which coverage may be extended vary from carrier to carrier. Some carriers only offer this benefit if the carrier cancels or non-renews the policy for reasons other than non-payment of premium (usually called "a one-way tail").

 

Fidelity Bond

See Employee Dishonesty.  A Fidelity bond protects for the dishonest acts of employees.

 

Fiduciary Liability Insurance

A fiduciary liability policy protects the personal assets of a plan Fiduciary due to allegations of breach of fiduciary duties.  This is first party insurance and is purchased by the plan sponsor.  It provides coverage for the plan and fiduciaries of the plan.

 

First Dollar Defense or Loss Only Deductible
The deductible only applies to an actual loss, judgment or settlement. In other words, from the very first dollar spent defending the matter, the carrier is paying for such defense expenses. The deductible would not apply to the cost of defense, only actual damages.

  

Innocent Partner Coverage
Whenever coverage would have been excluded or otherwise lost due to concealment of a claim by any insured, this feature provides coverage to each insured who did not personally conceal, commit or participate in the wrongful acts from which the concealed claim arose. There are, of course, limitations to this feature and each policy clearly outlines this benefit if it is offered.

 

Minimum Earned Premium
Once coverage is bound, a minimum earned premium is the amount of premium actually earned even if the policy is immediately canceled by the named insured.

 

Personal Injury Coverage
The definition of what constitutes a "personal injury" covered under any policy varies from company to company and coverage form to coverage form. It is usually meant to include, but may not be limited to, coverage while acting on behalf of the firm for libel, slander, defamation, disparagement, malicious prosecution or abuse of process, false arrest, detention or imprisonment, wrongful entry, wrongful eviction, or any invasion or breach of privacy or the right of private occupancy.

 

Prior Acts Coverage
Also referred to as a Retroactive date.  This is a stipulated date usually shown on the Declarations Page of a claims-made policy. It means no claim is covered by the policy if it is based upon or arises from any wrongful act which occurred prior to the stipulated date.

Retention/Self-Insured Retention
The amount the insured assumes of any loss and can include the cost of defense. It is similar to a deductible; however, the limit of liability of the policy is usually excess over the retention amount.

 

Retroactive Date
See Prior Acts date

 

Surplus Lines Taxes and Fees
These are taxes and fees imposed by a State to an insurance carrier that is not "admitted" to do business in that state, or in other words, it is a "non-admitted carrier."