You are on page 1of 3

A Division of NIF Group, Inc. 30 Park Avenue Manhasset, New York 11030 Email:mdefeo@nifgroup.

com Phone: 516-365-7440 Fax: 516-365-9566 Toll-Free: 800-664-3776

COMMUNICATE THAT CONTRACT REQUIRMENTS SHOULD INCLUDE PURCHASE OF 3 OR 6 YEAR TAIL VALUE OF A PROF. LIABILITY SPECIALIST, USING A WHOLESALER OR BROKER WITH DEDICATED TEAM, EXPERTS IN NOT JUST PROF. LIABILITY BUT IN CLAIMS-MADE POLICY FORMS TOO

I believe-and hope-that professional liability brokers are trained from day one to always recommend that policies written on claims-made forms be renewed with the incumbent market-whenever possible, and when all other deciding factors are equal or close to it. It is when this advice is given -by an intermediary to their retail client or by an agent/broker to the policyholder- that the question WHY? comes up. A thorough understanding of the mechanics of claims-made policy forms is required to elaborate on the advice given and to explain why the recommendation is being made. As professionals we have to be explain to WHY we make recommendations. - claims can and do fall between the cracks - loyalty and continuity - long tail nature of the claims Certainly not advisable to change carriers because of a small or even decent price reduction. Of course, the policyholder/insured is the ultimate decision maker and may choose this course of action. This imposes a duty on the insureds agent broker to explain to them why it is worth paying some additional premium in order to remain with an incumbent carrier. Another dangerous move is for the retail agent/broker-the insureds representativeto engage an intermediary specialized not only in that type of policy but also in claimsmade policies-and then replace coverage with a direct market on a renewal due to price. A savvy may have the new carrier match the retroactive date, maybe even the Prior/pending litigation date and perhaps, have them accept a renewal application. Protect your E&O, protect your agents E&O, save the account, add value

Why it is dangerous to change claims-made carriers even with the same Retroactive Date

Regarding any claims made but not yet reported, pending claims or known situations that may give rise to a claim: They should be reported to the old/current carrier prior to expiration; however, there is no guarantee that claims subsequently reported after expiration that arise from or relate to such matters will be covered by the old carrier, especially if coverage is moved upon renewal; 2) The new carriers intent would not be to cover claims that arise from or relate to such matters that existed prior to their inception date.
1)

Regarding any past claims or potential claim incidents that were reported to the old carrier: New claims may come in that arise or relate to the past claim. The same claimant may amend the claim or bring an entirely new claim, with new or different allegations and/or naming additional parties. A new claimant may make a claim against the same party with similar and/or new allegations, etc. In these cases both carriers would likely attempt to deny coverage. Relevant issues:
1)

2)

3)

4) 5)

Mainform applications contain claim warranty questions. Yes responses may result in specific exclusions or may trigger exclusions in the form. No responses may trigger a voiding of the policy or at least denial of coverage if a claim is made and the carrier tracks the history of the claim and determines the Insured should have answered yes. Discovery provisions that allow the reporting of potential claim incidents may or may not exist in the old or new policy or both. They may or may not state that future claims that arise from the incident will be considered made when the incident was reported-if they do they typically have strict reporting guidelines. They may allow, or require the insured to report potential claim incidents. Definitions of claim and wrongful act may differ between the 2 carriers, impacting whether the carriers deem an incident should have been reported, and when; The new and old carriers and the Insured may have 3 different opinions as to what constitutes a situation that may give rise to a claim; Policies may or may not include definitions of interrelated claims. Policies may or may not state

that future related claims will be covered. 6) Prior/pending litigation exclusions and continuity dates that may be spelled out on a declarations page or incorporated in the policy form. 7) Prior knowledge and prior notice exclusions etc. in the form. 8) Underwriting of D&O/EPL claims & claims-made policy claims is highly subjective, often a long relationship with the client or trusting relationship with the broker will allow for coverage when by the letter of the policy, coverage should have been excluded. I have had several of these situations.

All else being equal, it is always our strong recommendation that the Insured renew with the incumbent claims-made carrier rather than change carriers due to pricing or convenience. If the Insured who is the boss makes the decision to change carriers, we can assist to walk you through the process to limit the exposure to a claim falling between the gaps-although there can never be any guarantees. The WORST thing a retail broker can do (as respects their E&O) is to move an account that was placed thru an intermediary specialized in that coverage, to place with a direct market, and then have a claim denied.