The following descriptions of policy coverage and features are intended to give customers a basic explanation of insurance terms used on our Website. We are obligated to tell you that wherever these explanations may differ from actual policy language, the policy language always prevails.
Professional Liability Insurance
Also known as Malpractice Insurance or Errors and Omissions (E&O), this coverage protects you and your company in the event a client alleges they have suffered a loss as a result of an error or an omission committed by you in the delivery of your professional services. For example:
- Failure to provide a service
- Improper documentation
- Improper supervision
- Misrepresentation of facts
- Violations of state and federal law (e.g. violation of right to privacy), and many more
Professional Liability covers your organization, your professionals and/or employees in the course of providing professional services to your clients. In addition to paying for covered damages, the policy available through Target also pays for legal defense costs — even if the claim is bogus. Considering that the cost for legal services can quickly add up to thousands of dollars (even hundreds of thousands), defense cost coverage is critical.
General Liability Insurance
This coverage is designed to protect a business from many exposures, including claims that result from 3rd party (i.e., your clients) accidents. For example, a client trips on a ladder and suffers a serious injury. In addition, Most bodily injury and property damage mishaps are covered under General Liability.
Employment Practices Liability Insurance (EPLI)
EPLI covers a business or organization for liability related to employment (e.g., employee claims regarding sexual harassment, wrongful termination, discrimination, invasion of privacy and more. Claims may be filed by current employees, former employees and even candidates for employment. Some EPLI policies also cover seasonal, leased or contracted employees. Many variables affect the cost of EPLI including type of business or organization, number of employees and claim history.
While most professional liability policies are “Claims Made and Reported” (see below), Occurrence Policies are occasionally available. Target’s Home Inspectors and Staffing Programs are good examples. There is no difference in coverage on Claims Made vs. Occurrence but there is a significant difference when it comes to claims.
An Occurrence Policy provides coverage for an error or omission that takes place during the policy period, regardless of when the claim is reported. In other words, this type of policy includes protection for any covered claim that may be filed at any time in the future (up to the limits on the policy in force at the time of the incident). The company that provided that in force policy would be responsible for paying the covered claim.
Here’s an example that may help:
Smith Inspection Services purchased a professional liability policy on an Occurrence Policy from the ABC Insurance Company, effective 1/1/2014. In 2015, the agent moved the policy to Target Professional Programs. Smith Inspection was subsequently sued by a client for an inspection error that occurred in June 2014. Since an Occurrence Policy with ABC Insurance Company was in effect at the time this error “occurred,” ABC would be responsible for the claim, up the coverage limits on the policy purchased.
Claims Made and Reported Policy
A Claims Made and Reported Policy covers only those negligent acts or omissions that occurred during the policy term and reported to the insurance company during the policy’s twelve month term. Claims for incidents that occurred before the policy’s effective date, or reported after the policy’s expiration date would not be covered — unless the insured had also purchased optional Prior Acts Coverage and / or an Extended Reporting Period (see below).
Prior Acts Coverage / Retroactive Date
Because there is often a lag between the time services are rendered and when a potential claim is made known, Prior Acts provides coverage for errors or omissions claims that arise from services rendered prior to the current policy’s effective date. The Retroactive Date is the date back to which Prior Acts Coverage is effective.
Here’s an example that may help:
If the term of a claims made policy is from January 1, 2015 – January 1, 2016, and the insured has Prior Acts Coverage with a retroactive date back to January 1, 2010, the current insurance company would be responsible for claims that occurred anytime after 1/1/10 if those claims are reported during the policy term (1/1/15 – 1/1/16). Because the insurance company is accepting exposure for a longer period of time, there is an additional premium for Prior Acts Coverage.
Extended Reporting Period (ERP)
You may know this as “Tail Coverage.” Almost the opposite of Prior Acts Coverage, an ERP extends the time during which a negligent act or omission that occurred during the policy term can be reported as a claim to the insurance company. With an ERP, claims that would have been covered if reported during the policy term are instead covered during the term of the ERP.
Retention vs. Deductible
A “retention” is similar to a “deductible” but varies in the way the amount is paid. On a policy with a retention, the insured must pay the retention amount before the insurance company pays for the covered loss. On a policy with a deductible, the insurance company’s payment for a covered loss excludes the deductible amount (and the insured does not pay the deductible amount in advance).