LW 00 01–LAWYERS PROFESSIONAL LIABILITY POLICY ANALYSIS

(March 2023)

 

Collapsible Menu

Introduction

Section I – Lawyers Professional Liability Coverage

A. Insuring Agreement

B. Exclusions

C. Supplementary Payments

Section II–Coverage Extensions

Section III–Who Is An Insured

Section IV–Limits Of Insurance

Section V–Deductible

Section VI–Conditions

Section VII–Extended Reporting Periods

Section VIII–Definitions

INTRODUCTION

While ISO introduced this policy in 2011, many carriers continue to write this coverage on proprietary forms. Regardless, this form can be an excellent comparison form when reviewing coverages among various carriers. That is due to it containing coverages that a consensus of experts agrees are important to a lawyer. The policy opens with clear notice about two very important issues:

  1. Only claims first made during the policy period or the extended reporting period will be considered for coverage
  2. The expense to defend is payable within the Limits of Insurance. This means that any dollar paid in defending a claim results in a dollar that is no longer available to pay for any settlement

Similar to other policies, the term you or your refers to the named insured and the term we, us or our refers to the insurance carrier providing coverage under this policy. These are not the only defined terms. The reader is referred to Section VIII- Definitions for other defined terms.

 

SECTION I – LAWYERS PROFESSIONAL LIABILITY COVERAGE

A. Insuring Agreement

1. The insurance company agrees to pay amounts the insured is legally obligated to pay as damages because of a wrongful act. However, this insurance must cover the wrongful act.

The insurance company not only has the right to defend any suit brought against the insured, but it also has a duty to do so. That duty, which can be very expensive, does not apply to suits brought for wrongful acts that this insurance does not cover.

The insurance company decides which incidents of wrongful acts are investigated. This is very important because Section VI–Conditions states that the named insured is required to report all incidents of wrongful acts. The insurance company receives that information and decides when and if it will investigate such incidents.

The insurance company can settle any claim that may result from an incident. However, the named insured must agree, in writing, to any settlement prior to its being made. This is important to protect the reputation of the insurance agent. However, it is not without consequence. Section VI-Conditions B. Consent to Settle explains that the insurance company does not pay more on the claim than the amount it could have settled for but didn’t because of the named insured’s refusal.

The amount this policy pays is in accordance with Section IV–Limits of Insurance. The insurance company no longer has a duty to defend once payments for defense costs and/or for damages under this policy use up to the limit of insurance.

The only additional obligations that the insurance company has beyond what is described above are those items specifically described in Paragraph C. Supplementary Payments.

2. Wrongful act(s) that this policy covers must meet all of the following conditions:

Note: Items 3 and 4. below explain what this means.

3. The date a claim is deemed to have been received by the insurance company is important because that date determines coverage. It is the earliest of the following:

A claim that the insurance company receives from an insured within 30 days following the policy period is considered received within the policy period. However, this grace period does not apply if there is an Extended Reporting Period in effect or if another policy is in effect.

4. The named insured cannot simply wait for a claim to be presented. It has a responsibility to notify the insurance company whenever a situation arises and the named insured can reasonably conclude that a claim against this policy might occur. The claim date is the date that the situation is reported to the insurance company.

5. All claims brought by the same person for multiple wrongful acts are considered a single claim and the date of all claims is the date of the claim first reported.

6. All claims that result from the same wrongful act or from an interrelated wrongful act are considered a single claim. The date of that single claim is the date on which the first claim was reported.

 

Example: Legal Eagles was insured by a Lawyers' Professional Liability Insurance policy from Acme Pro Insurors. The Acme policy dates were from 7/01/21 to 7/01/22. Effective July 1, 2021, Eagles switched to Posthaste Casualty. The Posthaste policy dates were 7/01/22 to 7/01/23. Both policies were issued on a claims-made basis and the Posthaste policy included a retroactive date of 07/01/22. Eagles, being a conservative firm, also bought an extended reporting option (one-year term) from Acme Pro Insurors. On Sept. 14, 2022, Eagles receive notice of a lawsuit. A former client was suing them for damages because the firm missed a filing deadline that barred the client from proceeding with a suit against a former business partner. Eagles notifies its new insurer, Posthaste. Posthaste denies the claim when they find out that the missed deadline (May 22, 2022) occurred before the retroactive date of their policy. Eagles then notifies Acme of the suit. Because the notification is within the Acme extended reporting period AND because the triggering event occurred before the last Acme policy's expiration date, Acme will defend (and possibly pay damages) for the suit.

 

Related Court Case: Law Firm's Failure to Give Notice during Policy Period When Claim Was Made Negate Coverage

B. Exclusions

1. Criminal, Fraudulent, Malicious, Dishonest or Intentional Acts

Coverage does not apply when a claim is made because an insured committed criminal, malicious, fraudulent, or dishonest acts. It also does not apply when a claim arises from acts, errors or omissions that are intentional. However, this exclusion does reach out and exclude all insureds because of one insured’s excluded actions. Innocent insureds remain covered but only if they meet this form’s definition of innocent insured.

Insureds are considered innocent when they meet all of the following conditions:

Note: Section II–Coverage Extensions B. Protection for Innocent Insureds explains the coverage available for the innocent insureds.

The insurance company is required to defend an insured until it is determined that the excluded acts were actually committed by that insured.

 

Example: Maxwell and Prather, LLC consists of eight partners. Maxwell has fiduciary responsibility to invest the funds of three different endowed non-profit groups. Maxwell knows the audit is lax so begins investing in created offshore companies in which he is the only stockholder. One of the non-profit groups brings on a new executive director who discovers the truth. She sues Maxwell and also Maxwell and Prather, LLC and all partners individually. When it is determined that Maxwell did commit the actions, all coverage is excluded. However, coverage for the other claimants continues because they were all innocent insureds and totally unaware of Maxwell’s activities.

 

2. Bodily Injury or Property Damage

This policy covers wrongful acts or professional liability. It does not cover bodily injury or property damage. Commercial General Liability Coverage Forms and Policies provide that coverage.

Note: Loss or damage to electronic data is considered property damage under this policy and therefore excluded. Coverage for loss or damaged electronic data is specifically excluded in the CGL. This could be a significant coverage gap.

3. Improper Use of Funds

Lawyers have a fiduciary responsibility to hold funds on behalf of certain clients. Violations of this fiduciary responsibility are not covered under this policy. Specifically, any claim with respect to such funds from any of the following actions is excluded:

Note: Defalcation means gross recklessness with respect to use of money entrusted to a fiduciary.

Claims that involve profit, remuneration, or any type of illegally gained monetary advantage are also excluded.

Coverage does not apply when a claim is brought because funds are not paid, collected, safeguarded, or returned.

4. Other Position or Capacity

The only covered wrongful acts are those related to the named insured or its predecessor organization. Claims that result from any insured providing professional services within another organization are excluded. This exclusion applies if the insured is part of the other organization by choice or was directed by the named insured to serve within that organization.

5. Insured’s Activities

An insured may be a trustee, partner, officer, director for businesses, charitable organizations, corporations or an employee trust. If so, that insured is not covered for any activities performed for that applicable operation when it is not the named insured. This exclusion also applies for the activities of an insured when in the role of an employee of another employer that is not the named insured.

6. Business Enterprise

a. Professional services that are rendered on behalf of the named insured or any predecessor organization are covered. However, coverage does not apply to services that are rendered on behalf of any of the following business enterprises:

·         One that an insured or an insured’s spouse owns or controls

·         One that an insured or an insured’s spouse operates or manages

·         One in which one or more insureds and/or insured’s spouses have more than 10% control or ownership

b. Any claim brought by any of the following business enterprises is excluded:

·         One that an insured or an insured’s spouse owns or controls

·         One that an insured or an insured’s spouse operates or manages

·         One in which one or more insureds and/or insured’s spouses have more than 10% control or ownership

Note: Coverage under this policy is for the named insured’s benefit. This means that there is no coverage for claims presented for businesses that are not the named insured or a predecessor organization.

7. Insured versus Insured

There is no coverage for any claim that one insured brings against another insured.

8. ERISA

Coverage does not apply to any actual or alleged violation of the Employee Retirement Income Security Act of 1974 (ERISA) on behalf of any insured party that is considered a fiduciary or trustee of the plan.

9. Violation of Any Securities Laws

There is no coverage for any claim that is the result from an insured violating the Securities Acts of 1933, the Securities Exchange Act of 1934, or any other similar federal, state, or local regulations that relate to securities.

10. Prior or Pending Litigation

The declarations has a space for Pending or Prior Litigation Date. When a date is entered in that space there is no coverage for claims related to any litigation that was pending prior to that date. Such claims are all that arise from the same or similar circumstances or allegations. When the word “None” is entered in that space this exclusion does not apply.

11. Contractual Liability

There is no coverage when liability for a wrongful act was assumed in a written contract or agreement. However, coverage does apply if the insured would have been liable without such a contract or agreement.

12. Investment Advice

There is no coverage for any claim that is the result of advice related to any type of investment.

13. Discrimination

There is no coverage for claims related to discrimination. There are no exceptions.

14. Employment-related Practices

All employment-related practices, acts, errors, omissions or policies are excluded. Examples include wrongfully terminating or refusing to hire; promotions, demotions, evaluation, reassignments, and discipline; and slander, harassment, humiliation, libel, or slander.

15. Capacity as a Public Official

When a claim is related to an insured acting as a public official, there is no coverage. The only exception is when an insured must be deemed a public official in order to provide professional services for a governmental agency.

 

Example: Jasper is a partner at Paper, Rock, Scissors and Jasper. The city of Mainville hires Jasper to be their counsel. State law requires that the city counsel must be a public official, so Jasper is deemed such by the city. If Jasper is sued, he continues to be covered under this policy even though he has been so deemed.

 

16. Personal and Advertising Injury

This policy covers wrongful acts or professional liability. It does not cover personal and advertising injury.

Note: Personal and advertising injury is also not covered under the CGL either because the classification rules require that either CG 21 38–Exclusion – Personal and Advertising Injury Endorsement or CG 22 96–Limited Exclusion - Personal and Advertising Injury – Lawyers Endorsement be attached. This could result in a significant coverage gap.

17. Prior Notice

This policy’s coverage does not apply to any claim for which notice had been given under a prior policy. This applies only if that prior policy provided the same type of coverage that is available under this policy.

18. Insurer Insolvency

The financial condition of an insurance carrier is very important to a client and it can be expected that a claim might result if a carrier becomes insolvent and the client is left without insurance. Any claim that results from an insurance carrier, reinsurer or other entity that assumes risk becoming insolvent, bankrupt, liquidated, placed in receivership or unable to pay is excluded. This exclusion applies to more than just an insurance company. It applies to whatever type of insurer or insurance plan has agreed to the placement of coverages. Risk retention groups, captives, reinsurers are some examples.

Note: This wording seems more appropriate for Insurance Agents Professional because of the terms “placed or obtained coverage for client or account.” The placing of insurance is not a covered professional service.

19. Financial Institution Insolvency

There is no coverage when a claim is brought because a financial institution in which the insured set up an account for a client becomes insolvent, bankrupt, liquidated, or is placed in receivership.

 

Example: Preter and Preter, LLP places all client accounts in the Good Community Bank because of long standing relationships and proximity. Unfortunately, they were not too comfortable and very surprised when the bank was taken over by the FDIC. Some client accounts were in excess of the FDIC insured amount. Those clients sue Preter and Preter. There is no coverage under this policy because of this exclusion.

 

20. Pollution

Coverage does not apply to any claim that arises out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants at any time.

Coverage also does not apply to any loss, cost, or expense that arises out of the following:

21. Fungi or Bacteria

Claims related to any effects of fungi or bacteria within a building are excluded. There is also no coverage for any actions taken concerning fungi or bacteria such as abating, testing, or assessing its existence, regardless of the party that takes or requires such actions.

22. Abuse and Molestation

Coverage does not apply to any claim that is related to abuse or molestation that occurs while an insured is providing professional services. This exclusion applies regardless of who is abused and who does the abusing. The exclusion applies if the abuse or molestation actually occurred or was only threatened.

Note: This can be modified by attaching LW 04 05–Abuse or Molestation Coverage. It does not cover the actual perpetrator but does cover the named insured.

C. Supplementary Payments

The insurance company pays the following for any claim it investigates or settles. The company also pays these items when it incurs them to defend a suit for which it has a duty to defend.

None of these costs reduce the limits available to pay for settlements, claims, and judgments. In addition, none of them are subject to the deductible.

1. If the insurance company pays a judgment, it also pays the prejudgment interest charged against the insured. However, if the insurance company offers the full limits to settle, it does not pay any prejudgment interest that accrues after it makes the offer.

2. Interest that accrues on the full amount (not just the amount within the available limits) of any judgment after it is entered but before the insurance company pays, offers to pay, or deposits with the court the part of the judgment that is its responsibility.

IMPORTANT: Any other sums spent to defend a case reduce the limits that are available to pay for settlements, claims and judgment.

SECTION II–COVERAGE EXTENSIONS

The coverages that this section provides are within the limits of insurance. They are not in addition to the limits of insurance. This means that any payment made under one of these extensions reduces the amount of insurance available to pay other losses.

A. Spousal Liability

Occasionally a claim will name an insured and also the name of his or her spouse. When the spouse is named only because he or she is an insured’s spouse or because of the ownership interest of that spouse in property or assets that are being sought in the claim, this policy will respond.

While the policy does not specifically define the term “spouse,” it does state that a spouse can be a statutory, common law or any other type of spouse as determined by the law of the country.

This Coverage Extension applies only when the claim is presented due to the insured’s wrongful acts. It does not cover any claim that arises due to the spouse’s wrongful acts.

B. Estates, Heirs, Executors, Trustees, Administrators and Legal Representatives

When an insured becomes incapacitated, insolvent, or bankrupt, legal action for wrongful acts against that insured continue. The coverage available to such an insured applies to that insured’s:

This coverage applies only for the wrongful acts of the insured though.

C. Protection of Innocent Insureds

Exclusion B. 1 excludes coverage for insureds who engage in certain types of activities. This extension explains that the exclusion does not reach out and exclude all insureds because of one insured’s excluded actions. Innocent insureds remain covered but only if they meet this form’s definition of innocent insured.

Condition C.1.b. voids coverage when the named insured fails to notify the insurance company of a claim as soon as practicable and in writing. Because of this extension, this coverage is not void to any innocent insured who promptly takes appropriate action as soon he or she is aware of the failure of the named insured or any other insured to do so.

Insureds are considered innocent when they meet all of the following conditions:

 

SECTION III–WHO IS AN INSURED

The following are insureds if the described relationship is with the named insured. The insured status applies to only professional services that are performed on behalf of the named insured:

The following are insureds if an insured, as described above, dies, becomes incapacitated, insolvent, or bankrupt. The coverage available to these insureds is the same as that which would have been available to that insured whom they represent:

Note: It is unusual but this paragraph does not specifically state that the named insured is an insured.

SECTION IV–LIMITS OF INSURANCE

A. The Each Claim Limit is the most paid due to all damages and defense costs resulting from a single claim. This is subject to the Aggregate Limit.

B. The most the insurance company pays for the combined sums of damages and defense costs are the Limits of Insurance on the declarations, subject to other items in this section. This is regardless of the number of insureds, claims made, suits brought, or number of parties that make claims or bring suits.

C. The Aggregate Limit is the most paid for that total sum of damages and defense costs because of all wrongful acts that this policy covers.

This section also clarifies how the limits of insurance apply. They apply separately to each consecutive annual period and to any remaining period of less than 12 months. The period begins with the policy period “From” date on the declarations and ends on the policy period “To” date, unless extended after issuance for any additional period of less than 12 months. If the dates are extended, the additional period is treated as part of the last preceding period for the purpose of determining the limits of insurance.

SECTION V–DEDUCTIBLE

This insurance company does not pay anything until the sum of the damages plus the defense expenses are more than the deductible on the declarations. It then pays only those defense expenses and damages that exceed the deductible. However, it will pay not more than the limit of insurance on the declarations.

The deductible applies on a per wrongful act basis. All claims directly or indirectly related to the same wrongful act are subject to the same deductible.

The insurance company has the right to pay the full amount of the loss in order to reach a settlement and then require that the named insured pay its deductible. The named insured is expected to immediately reimburse the insurance company the deductible amount when asked to do so.

SECTION VI–CONDITIONS

A. Bankruptcy

Bankruptcy or insolvency of the insured or the insured’s estate does not relieve the insurance company of its obligations that are a part of this policy.

B. Consent to Settle

The insurance company has the right and duty to investigate and settle losses as it deems appropriate. However, under this policy the insurance company stipulates that it will not make a settlement until the named insured agrees to it and does so in writing.

Note: This could be difficult if the named insured wants to settle but the insured does not.

The named insured may refuse to grant permission for a settlement. In that case, the insurance company continues to handle the claim. However, if the ultimate loss is more than the settlement amount the named insured rejected, the named insured must pay all amounts that exceed the settlement amount.

 

Example: Lakeridge & Pond, Urbanville’s oldest law firm, was sued by a former client. The client alleged that the firm failed to give competent advice about the privacy and confidentiality disclaimers on the client’s business Website. The error resulted in the client losing an expensive breach of privacy lawsuit. Lakeridge also showed poor judgment in its selection of a lawyers professional liability limit. Their insurer strongly advises the law firm to settle the claim as their policy’s meager $500,000 limit could easily be exhausted by the potentially, drawn-out suit. Lakeridge agrees to settle the claim via arbitration.

 

C. Duties In The Event of Claim or a Wrongful Act That May Result in a Claim

The named insured has a number of duties to perform when there is a wrongful act or when a claim is presented.

Note: Under the Separation of Insured’s Condition, the insured is treated as the named insured so these conditions apply to both the named insured and the insured.

1. The named insured must take the following actions when an insured receives a claim:

Note: Coverage Extension C. Protection of Innocent Insureds states that coverage is not voided for an innocent insured because the named insured did not notify the insurance company of a claim. This applies only if the innocent insured notifies the insurance company in writing as soon as it finds out that the named insured failed to do so.

2. The named insured must work with the insureds involved with the claim and do the following:

Note: The named insured is not to act independently but instead must wait on the insurance company.

3. No insured may voluntarily make any payments, assume any obligations, or incur any expenses without the insurance company's consent. If it does, it does so at its own cost or expense.

4. When the named insured learns of conduct that could lead to a claim, it must notify the insurance company in writing. The time frame is as soon as practicable. The reporting is required when the named insured has a reasonable expectation that the claim could occur. The notification must provide the following:

D. Subrogation

Any rights the insured has against others to recover all or part of any payment the insurance company makes transfer to the insurance company. The insured must preserve those rights and not do anything to impair them after the loss occurs. The company can request that the insured bring suit or transfer those rights to it and help it enforce them.

Note: An insured can give away its rights to recovery prior to a loss but it cannot give away any of those rights following a loss. This is a very important tool which an insurance company will use in seeking reimbursement following a loss so the insured will be required to prove that any such rights were relinquished and when it did so.

 

Example: Jessup Partners uses the services of Killiam, Inc. on some of their more difficult cases. The contract between the two requires that Jessup relinquish any rights to recovery against Killiam when working together on such cases. Killiam makes a serious error while performing professional services for one of Jessup’s client. That client sues Jessup. Jessup’s insurance company responds to the claim and settles it. The insurance company plans on using Jessup’s right of recovery in order to recover from Killiam but is prevented from doing so by the contract between Jessup and Killiam that had been signed prior to the loss.

E. Other Insurance

The insurance company's obligations to pay are limited if there is other valid and collectible insurance that applies to the loss. If that other insurance uses the same plan, terms, and conditions as this policy, any payment is made proportionally with the other carrier. The share is determined by dividing the amount of insurance under this policy by the limits available from all carriers.

When other insurance available for a wrongful act is not as described above, this policy pays only amounts in excess of that other insurance. This policy is excess even if the other insurance cannot be collected. The most paid under this policy will not exceed the insurance limits on the declarations.

F. Assignment

This policy is for the named insured. Changes or modifications for parties that have an interest in this policy can be made only with the insurance company’s written consent.

G. Legal Action Against Us

No party has the right to bring the insurance company into any suit involving an insured under this policy.

No party can sue the insurance company under this particular policy unless all of its terms and conditions have been satisfied. After an agreed settlement has been reached or a final judgment rendered against an insured, a party may sue the insurance company for recovery. In such a case, the insurance cannot be held liable for damages that are outside of the provided policy coverage or for amounts in excess of the policy’s limit of insurance.

The term “agreed settlement” is one that the insured, the insurance company, and the claimant or its legal representative agree upon and then sign and agree to release liability.

The insurance company is not responsible to pay any part of the named insured’s deductible.

H. Representations

By accepting this policy as issued, the named insured agrees that the statements on the declarations are complete and accurate and that they are based on its representations. It further agrees that the policy issued is based on those representations.

Note: This is very important because this condition allows the insurance company to use inaccurate statements in any application to void coverage.

I. Separation of Insureds Other than the Limits of Insurance and any rights and duties that apply specifically to the named insured, the insurance provided applies to each insured as though it were the only named insured. It also applies separately to each insured against whom claim is made or suit is brought.

Note: This wording is different from that used in the CGL. There is no reference to the “first” named insured but only the named insured. It also specifies that the insurance applies as if an insured is a named insured. However, this does not apply to rights and conditions that are specific to the named insured.

J. If You Are Permitted to Select Outside Defense Counsel

The insurance company may agree to allow the insured to select its own outside counsel or the insurance company may be forced to allow the insured to select is own outside counsel. If this permission is granted after the Limits of Insurance are used up there is no change in this policy. However, if Limits remain available the following provisions are added:

K. Changes in Exposure

1. Change in Number of Attorneys

The named insured is obligated to tell the insurance company when it increases the number of attorneys providing professional services or when it acquires any organization. The notification must be made within 90 days of the change and the named insured must provide necessary underwriting information requested. A premium change will result with the date of change being the date of the increase or acquisition.

If the information is reported, coverage applies to the new insureds but if not, the new insureds are not covered.

2. Acquisition of Named Insured

If the named insured is merged into another organization such that the named insured does not survive, coverage under this policy continues until the end of the policy period but only for wrongful acts that occurred prior to the merger. The annual premium for the policy is considered fully earned as of the date of the merger and there is no return premium.

The policy requires that the named insured give the insurance company written notice of this acquisition change as soon as practical. The named insured is expected to provide answers to any relevant questions the insurance company has regarding the acquisition.

L. Cancellation

This condition explains how cancellations are handled. Many states require using a mandatory state form in place of this cancellation condition but this is a good starting place.

The first named insured is the only party that can cancel and it does so on behalf of all insureds. The only thing it must do in order to cancel a policy is to mail or deliver the policy to the insurance company before the cancellation date.

The insurance company can cancel by mailing or delivering written notice to the first named insured. The notice must be either mailed or delivered at least ten days prior to the cancellation date when the reason for cancellation is non-payment of premium. The named insured must receive at least 60 days’ notice if the cancellation is for any other reason. This notice must clearly state the date of cancellation because it becomes the policy period's end date.

The first named insured receives a return premium when the policy is cancelled. The return premium must be pro rata of the policy premium when the insurance company cancels. However, the return premium may be less than pro rata when the first named insured requests cancellation.

Note: The short-rate penalty is not mandatory but it is possible.

The cancellation is in effect even if the named insured did not receive the return premium.

Proof that notice of cancellation was mailed is sufficient to effect cancellation. Proof that the first named insured actually received the notice is not required.

M. When We Do Not Renew

If the insurance company decides to not renew, it mails or delivers written notice of the non-renewal to the first named insured listed on the declarations at least 30 days before the expiration date. Proof that notice of cancellation was mailed is sufficient to effect cancellation.

Note: State amendatory endorsements may supersede this condition.

N. Changes

The policy that the insurance company issues and the application attached to it represents the agreement it makes with the named insured. If the first named insured requests a change, the insurance company has the right to accept or reject the request. An endorsement that amends, waives, or changes any part of the policy must be attached to the policy.

O. Premiums

The first named insured is the party that pays the premiums and receives all return premiums.

P. Premium Audit

The insurance company follows its rules and rates in developing the premium for the risk. When the declarations is marked that this policy is auditable, the insurance company has the right to examine the named insureds records at any time during the policy period and for up to three years following the policy period.

When a policy is auditable, the advance premium on the declaration is a deposit premium.

At the end of each audit period, the insurance company computes the earned premium for the period and notifies the named insured of the amount due. At the end of the policy period the premium is computed for the entire policy period. If it is in excess of the combined advance and audited premiums, the named insured immediately owes the difference. If it is less than the combined advance and audited premiums the insurance company will return the excess.

It is the responsibility of the first named insured to provide the needed premium audit information as requested by the insurance company.

SECTION VII–EXTENDED REPORTING PERIODS

There are two extended reporting periods. One is automatic and the other is optional.

The automatic extended reporting period is called the Basic Extended Reporting Period. The reporting period begins at the end of the policy period and lasts for only 60 days. No additional premium is required. It applies only if:

The optional extended reporting period is called the Additional Extended Reporting Period. The named insured has only 60 days following the end of the policy period in which to purchase this reporting period. If purchased, the reporting period begins at the Basic Extended Reporting Period and lasts for three years. It is available only if:

o    Noncompliance of policy terms or provisions

o    Lack of cooperation

o    Application related fraud, misrepresentation or concealment. This applies to initial and renewal applications.

o    Nonpayment of deductible or premium

Additional premium is required and an endorsement must be attached to the policy. The insurance company calculates the additional premium according to its rules and rates but it cannot be more than 200% of the annual premium charged for this policy.

The named insured is responsible for requesting the Additional Extended Reporting Period and it must be requested within 60 days of the policy period end date. The request must be in writing and must be accompanied by the premium and any other amounts of money the named insured may owe the insurance company, such as deductible reimbursements. The premium is fully earned and neither party can cancel the endorsement.

Note: The only coverage differences between these two reporting periods are that the Basic Extended Reporting Period applies automatically and expires at the end of 60 days while the Additional Extended Reporting Period applies only if purchased, begins when the Basic Extended Reporting Period and expires one year later. The periods do not overlap because the Additional Extended Reporting Period, if purchased, begins after the Basic Extended Reporting ends.

The following apply to whichever extended reporting period is in effect:

This extended reporting period does not:

The sole purpose of an extended reporting period is to extend the time during which claims may be made. This means that only claims with the following characteristics can be reported within the extended reporting period:

SECTION VIII–DEFINITIONS

Defined words are used throughout the policy. Restricting their meaning to the definition in the policy gives all parties a clearer understanding of the coverage intended. Twenty-three terms are defined.

A. Advertisement

This is a published or broadcasted notice to the general public or specific market segments concerning the named insured's goods, products, or services in order to attract customers or supporters. Published notices include material placed on the Internet and other electronic forms of communication. Websites are not considered an advertisement. However, notices on websites that provide information about the named insured's goods, products, or services in order to attract customers or supporters are.

B. Application

The application provided is part of this policy. It includes all attachments, addendums, and any other material submitted to the insurance company along with the signed application.

C. Bodily Injury

This is bodily injury, disability, sickness, or disease a person sustains. Death that results from bodily injury, sickness, or disease is considered bodily injury whenever the death occurs.

Mental injury, anguish, or tension; emotional pain or suffering, and shock are all considered bodily injury regardless of how they occur.

D. Claim

A claim is any of the following:

A request by an insured to enter into a tolling agreement (defined below) is also a claim but only if it is related to professional services being rendered or that should have been but were not rendered.

 

Example: Legalbiz is hired as a consultant to a high-profile merger. After the merger is complete, Jim sues Legalbiz, alleging that they were misled about the deal. In a separate action, Geri sues Legalbiz, alleging that they failed to act on a more lucrative arrangement. Legalbiz reports both suits to General P&C, their Lawyers’ Professional Liability insurer. The carrier says it will respond, but it consolidates the suits as a single claim (as they were both generated by allegations of harm from the merger activity).

E. Coverage Territory

The United States of America, its territories and possessions, Puerto Rico, and Canada

Coverage territory is also other parts of the world but only if the insured's responsibility to pay damages is determined in a suit based on the merits in the territory described above or in a settlement agreed to by the insurance company.

F. Defense Expenses

Note: This definition is very important because while these expenses are paid by the insurance company, their payment reduces the limit of insurance available to pay damages.

The following payments are made by the insurance company and allocated to a specific claim:

Note: This is very open-ended, which could lead to arguments and litigation if the limits of insurance become exhausted.

Note: In the CGL, attorney fees and attorney expenses that are taxed are not part of this item but there is no mention in this policy.

Salaries and expenses of the insurance company employees are not considered defense expenses. Salaries and expenses of the insured’s employees are also not considered defense expenses but only while acting as insureds.

G. Discrimination

Federal, state, and local rules, regulations, and statutes provide a list of physical characteristics that, if used in making a decision, are considered a violation of that individual’s civil rights. Examples include gender, mental condition, religion, marital status, race, and age.

H. Employee

The term employee is broadened to include leased workers and temporary workers. It does not include independent contractors.

I. Fungi

This is any type or form of fungus as well as scents, spores, and by-products that fungi release. Mold, mildew, and mycotoxims are all considered fungi.

J. Insured

Section III–Who is an Insured identifies the parties that qualify as an insured. All insureds are treated equally and separately except when applying the limits of insurance.

K. Interrelated wrongful act

This is any wrongful act that occurs or results from the same circumstance or allegation and becomes the basis of a suit or a claim.

L. Leased Worker

A person that a labor leasing firm leases to the named insured under a written contract or agreement to perform duties related to conduct of the named insured's business. Temporary workers are not considered leased workers.

M. Named Insured

An individual or entity listed on the declarations. There can be more than one entity and/or individual named on the declarations.

N. Personal and Advertising Injury

Any injury that arises out of one or more of the following offenses:

O. Policy period

The policy period begins on the inception date on the declarations. It ends on the expiration date on the declarations unless there is an earlier termination or cancellation date.

P. Pollutants

Pollutants include irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.

Q. Predecessor organization

Any organization named as such on the application in which the named insured has the majority interest in its assets and liability. It must engage in professional services as this policy defines.

R. Professional services

Only services that are provided by an insured as part of the named insured’s practice of law are considered professional services. However, not all such services an insured performs are considered professional services. The first requirement is that the services require a license and that the insured have that required license. The second requirement is that the services must be of a fiduciary capacity such as any of the following but not limited to only these:

S. Property Damage

Property damage is physical injury to tangible property and all resulting loss of use of that property. Loss of use of tangible property is property damage even if the property is not physically injured. Loss of use is considered to have occurred at the time of the injury or occurrence that caused it.

Occurrence within this definition means an accident, including repeated exposure to essentially the same harmful conditions.

When electronic data is lost or is damaged it is considered a property damage loss. Electronic data is used with electronically controlled equipment and consists of information, facts or programs. The data is created and transported using software and is stored on various types of media.

Note: Property damage is excluded under this policy. However, this definition does not match the property damage definition in the CGL. The CGL property damage definition specifically states that electronic data is NOT tangible and therefore is NOT part of property damage. This modification of the traditional property damage to add electronic data means that damage to electronic data is excluded. Property damage to electronic data is also excluded in the CGL, but that is handled in the more straightforward approach of actually providing an exclusion rather than hiding it within the definitions.

T. Suit

This is a civil proceeding that alleges damages because of a covered wrongful act. Arbitration proceedings and any other types of alternative dispute resolution proceedings to which the insured submits to with the insurance company's consent are also considered suit. All sorts of governmental administrative hearings are also considered suits if the body has legal authority over the issues from which damages are being claimed.

U. Temporary Worker

Any person furnished to the named insured as a substitute for a permanent employee. The employee the temporary employee substitutes for must be only temporarily away from work. A person being furnished for seasonal or short-term needs is also a temporary worker.

V. Tolling Agreement

An agreement that suspends, for a particular cause of action, the time period during which a suit must be filed.

 

Example: Chris pulled out in front of Paul, resulting in a serious bodily injury claim. Paul, through his attorney, Brenda, filed a claim against Chris for injuries. Brenda has been negotiating with Chris’s insurance carrier but both agree that a final resolution cannot be reached until Paul finishes his rehabilitation. The statute of limitations for filing a suit in the state is two years. Brenda and Chris’s insurance company would like to continue settlement negotiations without a suit being filed. A tolling agreement is drawn up between Chris and Paul whereby the statute of limitation is suspended.

W. Wrongful Act

There are five requirements for a wrongful act:

 

Example: Mavis is a partner with Jason, Best and Fernald. Her husband, Paul, is a realtor for Pretty Good Houses.

Scenario 1: Paul is accused of providing inaccurate information about a title search. This is not a wrongful act because, while Paul provided information, he is not an insured.

Scenario 2: Mavis is accused of providing inaccurate information about a title search. This is not a wrongful act because Mavis never met the person who made the accusation.

Scenario 3: Mavis is accused of providing inaccurate advice on flipping houses. This is not a wrongful act because providing advice on flipping house is not professional services defined by this policy.

Scenario 4: Mavis misses an important filling date and her client loses the case by default. This could be considered a wrongful act.

Scenario 5: Mavis decides to not purchase flood insurance on property under her fiduciary responsibility. This is not a wrongful act because no flood occurred during the policy year and there were no damages.