Presentations text content in Professional Liability Insurance:
Slide1
Professional Liability Insurance:why you need it and what to watch out for
Welcome!
Timothy Soefje
,
Managing
Member of
Stamer
, Chadwick, Soefje, PLLC
Daniel
Oberheu
, Managing Director
McGowan, Donnelly & Oberheu, LLC
Slide2What is a Professional?
A professional is a member of a profession
.
The term also describes the standards of education and training that prepare members of the profession with the particular knowledge and skills necessary to perform the role of that profession
.
Most professionals are subject to strict codes of conduct enshrining rigorous ethical and moral obligations.
Slide3What is a Professional?
Professional standards of practice and ethics for a particular field are generally agreed upon and maintained through widely recognized professional associations.
Some definitions of “professional” limit this term to those professions that serve some important aspect of public interest and the general good of society.
Slide4The need for Professional Liability Insurance stems from...
Standards of care for professionals and the concept of professional negligence.
Contractual requirements.
Other insurance policy requirements.
Slide5Heightened Liabilities for Professionals
As professionals, we:Have special skills and experience in their field.Are held to a higher standard of care.Perform services for others for a fee.
Intellectual vs. Physical
Slide6Legal Foundations for Professional Liability
Every lawsuit turns on two independent questions:
What is the applicable “Standard of Care”?
What do the contract terms require?
Slide7Legal Foundations for Professional Liability
Negligence-based
Existence of duty
Breach of duty through act, error or omission
Damages
Proximate causal connection
Contract-based
Written agreement
Contract breached
Damages
Proximate causal connection between breach and the damages
Slide8Four Elements of Negligence
Existence of
Duty
or obligation requiring professional to conform to certain standard of care.
Breach of Duty
owed (failure to confirm to that standard of care) through act, error, or omission.
Damages
result from professional’s act, error, or omission.
Close
Causal Connection
between conduct and damages.
Slide9Four Elements of Negligence
Every professional negligence lawsuit turns on the pivotal question:
“What is the Standard of Care?”
This means a professional has a
duty
to “
act as an ordinarily reasonably prudent professional under the same or similar circumstances
.”
When a professional falls below this minimum standard of care, the professional has
breached the duty
owed to the client and is subject to being sued for damages.
Slide10Four Elements of Negligence
General rule remains expert testimony needs to establish
causation
as to conditions outside the common knowledge and experience of lay jurors.
Expert witness also must explain how and why the surveyor’s negligence
proximately caused
the injury or damage alleged in the lawsuit.
Absent proximate cause, no liability exists even if the surveyor fell below the Standard of Care.
Plaintiffs may recover all damages proximately caused by the surveyor’s breach of the Standard of Care.
Slide11Four Elements of Breach of Contract
Oral or written contract made between plaintiff and professional.
Contract breached by the professional.
Plaintiff suffered damages as a result of the breach.
Plaintiff’s damages were caused by the professional’s breach of contract.
Slide12Four Elements of Breach of Contract
Every breach of contract lawsuit turns on the pivotal question:
“What do the contract terms require?”
Contract Management
Most basic risk management best practice you can undertake.
Process of systematically and efficiently managing your contracts from creation to execution to maximize profits while minimizing risks
.
Years of legal experience will confirm that the contract itself represents the number-one cause of costly claims and lawsuits.
Slide13Breach of Contract and Insurance
Pure
Breach of Contract
claims and/or lawsuits are
not
insured by professional liability insurance.
The best way for a professional firm to avoid litigation from Breach of Contract claims is to develop standard protocol and checklists that they will commit to following in every phase of contract negotiations.
No matter whether it is a BIG contract or SMALL contract – a new client or an existing client – use the same process every time.
Varying from a standard protocol may lead to miscommunication, mistakes and bad business decisions.
Slide1410 Fundamentals of Contract Provisions
Scope of Services
Owner / Client Responsibilities
Billing and Payment Terms
Schedule
Termination
Consequential Damages
Indemnification and Insurance
Dispute Resolution
Certifications, Guarantees, and Warranties
Copyrights
Slide15Contractual Requirements for Professional Liability Insurance from Customers or Clients
Professional Service Agreement (PSA).
Master Service Agreement (MSA).
Agreement between Project Owner and Surveyor.
Agreement between prime contractor and subcontractor.
Slide16When contractually required to carry Professional Liability Insurance, watch out for:
Additional Insured status requirements on Professional Liability policies – try to strike out this provision. Here’s why:
Unreasonable limit requirements and/or unreasonable requirements for length of continuous coverage or ERP/Tail.
A.M. Best Insurance Carrier Rating Requirements.
Requirements for Warranties or Guaranties - strike out.
This is unreasonable and not insurable.
REMEMBER: Contractually-assumed liabilities may not be covered by insurance.
Slide17Other insurance policies may require you to carry Professional Liability Insurance.
General Liability policy exclusions and/or warranties.
Business owners’ policies.
How about Contractors Pollution Liability Insurance?
This can usually be combined with the Professional Liability policy.
Slide18Why do other insurance policies not respond to professional liability claims?
CGL covers bodily injury & property damage.
CGL
policies exclude professional liability.
Economic loss is the most likely exposure for the professional service.
Slide19Underwriting Professional Liability Insurance
Underwriting and Pricing ChallengesVariety of exposuresLimited dataNew case lawLitigiousness always on the riseVarying jurisdictions and clientsNew services being undertaken
Slide20Professional Liability Insurance Underwriting
Claims-made and Reported Policy Form
This differs from the trigger for coverage provided by a General Liability policy:
Retroactive date
Extended reporting period options (tail)
Moving insurance carriers “dilemma” on claims-made policies (reporting incidents before switching)
Slide21Professional Liability Insurance Underwriting: Application Process
Standard Questions
General Information: name, related entities, experience of the firm
Fees and receipts
Breakdown of firm’s revenues by discipline and project types
Claims history
Experience/resumes/bios
Largest 5 jobs or projects
Slide22Professional Liability Insurance Underwriting
Professional Services Covered
Are the professional services scheduled on the declarations page, by endorsement, or described in the base of the policy language?
Does the firm do anything “unique” that needs to be addressed with manuscript language on the policy?
Slide23Professional Liability Insurance Underwriting
Common Policy
Exclusions
Insured vs. Insured
Intellectual property
Warranties
&
guarantees
Fraud
Known
errors or omissions
Slide24Professional Liability Insurance Underwriting
Specific Exclusions to watch out for on Surveyor PL policies
:
Oil and Gas surveying work
Bridges
Tunnels
(
be sure you know your policy language here especially)
Slide25Real Life PL Claims Examples
Sample Claim Number 1:
Real Estate Developer hires a $100,000 (+/-) annual revenue Land Surveyor in a southern state that has islands off the coast but is connected to the mainland with bridges. Developer has plans to create a RV Park with a hotel (if vacationers want to get out of their RV), shower facilities (if they want to stay in their RV), tennis courts, community pool, and so forth.
Issue arose from an ALTA survey performed by Insured in 2008. Client of Insured advised that building department had asked Insured to verify the flood zone markings as they did not seem to agree with their GIS maps.
Client was shut down by Developer for all work on the buildings by the pool and shoreline because of a concern by the county in question that the flood zones are mismarked on the survey.
Insured sent the following to Client: “The notes on the old survey
show
that it uses an older FEMA flood map. The FEMA map had a photo background, but it was degraded by map hatching patterns, known as K series maps. At the time of the old survey, we were still using the previous series of flood maps known as H series maps. The botched photo backings in the K maps caused such an uproar that their roll-out was postponed for a lengthy period so we could try to figure how to go about using them. In the meantime, the older maps were still in use. These old H series maps were simply line drawings with no attempt at a photo background. We scaled on the paper maps from street line intersections, right of way lines, etc. to locate the subject parcel on the flood map.
Slide26Real Life PL Claims Examples
Sample Claim Number 1 (Continued):
Even so, the mapped lines that we were trying to measure between are themselves 10 or 12 feet wide at map scale, making the scaling process very difficult and sloppy. In the later K series maps, the idea was to use the photo backing to locate the subject parcel on the map, so the street lines and intersections were considered unnecessary and were deleted. The lack of visible street lines, when coupled with the failed photo background, made these K maps almost useless.
Issue cropped up more frequently as older work is compared to new information.
Admission from Insured: “It appears now that it is my fault. I traced the base drawing, including the flood lines, back for over 12 years. Whatever happened occurred at least that long ago and was never caught.”
Conclusion
: The error was a 40' mistake that caused all work to be re-done. What had been done had to be ripped out and returned to "as close as possible to pre-construction conditions.” Then all the work had to be re-designed and re-done.
Cost was roughly $2,000,000 to get to "pre-construction conditions" and approximately $2.2M for the re-design and construction.
The carrier paid $1,000,000, a limit loss, and the underwriter said they would have paid in the neighborhood of $4.2M had the insured been insured to $5M in limits
.
Long story short, an error in moving information forward (and government over-sight of flood zone) brought about a $4,000,000 loss.
Slide27Real Life PL Claims Examples
Sample Claim Number 2:
Claimants purchased a property in Texas. When it was originally advertised, it was represented as having a private lake in the back that may be filled in
per the town and multiple houses or townhomes may be built.
The title company issued a title commitment, which excepted a right-of-way easement 28’ wide across the north line as granted to the town.
Insured issued a survey showing a 48’ wide drainage easement running east-west through the entire depth of the property along the north property line. It also showed a 38’ radius turn around easement at the very front of the northeast corner of the property. The sellers
represented
that these were wrong.
The title company removed the 28’ easement from the exceptions and the
survey defendants new survey
only showed a 28’ right-of-way easement through a small part of the property under the driveway to the house. Plaintiffs closed on the property and allegedly invested over $700,000 in renovations.
Slide28Real Life PL Claims Examples
Sample Claim Number 2 (Continued):
3 years later Plaintiff complained about a storm water flow from a commercial property to the town. At that time, Plaintiffs learned that the town had a valid 28’ drainage easement as well as a 38’ turn-around easement encumbering most of the front yard up to the edge of their front door. The city has also informed them that the lake is part of the town's drainage plan and cannot be filled in.
Plaintiffs alleged if they had known about the easements and the lake restriction, they would not have purchased the property. Plaintiffs made a claim against the title company.
They failed and refused to compensate Plaintiffs for the cloud on the title.
Plaintiffs alleged against the surveyor defendants that they were misled in violation of the
Texas Deceptive Trade Practices Act
. Plaintiffs pleaded that the actions were unconscionable and intentional. Plaintiffs also alleged negligence against the insured surveyor.
Conclusion
: The case settled for the land surveyor after the insurance company paid $90,000 in defense expenses (in excess of Insured's retention) and $150,000 in indemnity to Plaintiffs.
It is unknown whether the town, the title company, the real estate agents, or any other party compensated Plaintiffs for their loss.
Slide29Real Life PL Claims Examples
Sample Claim Number 3:
Two
Licensed
Land
Surveyors, acting as independent contractors,
were
hired by Insured to do a survey for Plaintiff. Allegations include that the individuals were negligent in their failure to reasonably exercise the duty of ordinary care applicable to
licensed surveyors and at their own discretion, allegedly missing call to an existing metes and bounds description, Surveyors thereby changed the boundary line of Claimant's property, resulting in the termination of access to Claimant’s property.
Surveyors' addition of a missing call to the metes and bounds legal description on Schedule A of the title commitment issued by Stewart Title for the {XYZ} transaction, forwarded to Surveyors with the order for the survey, breached their duty to exercise ordinary care in drawing a survey.
Conclusion
: The claim resulted in $130,000 in defenses costs to the benefit of Insured and a $40,000 indemnity payment to Claimant.
It is unknown what Claimant did with the $40,000. A number of parties were sued with various connections to the property.
Slide30Questions? Comments?Thank you for attending!
Professional Liability Insurance:why you need it and what to watch out for
Daniel Oberheu, Managing DirectorMcGowan, Donnelly & Oberheu, LLC
Professional Liability Insurance:
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