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Protecting professionals
New exposures for lawyers, agents, and cyber risks demand bold solutions
By Elisabeth Boone, CPCU
Thanks to their education, training and experience, professionals in a wide range of fields tend to be successful, respected members of their communities and enjoy excellent reputations and a comfortable lifestyle.
When professionals advise clients, represent them, or perform services on their behalf, those professionals generally do so honestly and with good intentions—and usually with favorable or expected results.
Mistakes happen, however, and sometimes with consequences that are disastrous, costly, or both. Liability insurance is available to protect professionals in the event a claim is filed by a client or third party, and coverage can be tailored to address a host of exposures.
The skills required by professionals and the demands placed on them by changes in the legal, regulatory, and economic environment, as well as advances in technology, present myriad challenges to professional liability underwriters.
A leader in arranging liability coverage for professionals is Burns & Wilcox, the largest independently owned wholesaler in North America. Through its network of 38 branch offices across the country, Burns & Wilcox works with independent retail agents and brokers to help them develop profitable business in many specialty and niche markets.
David Derigiotis is a professional lines underwriter at the firm and has devoted his career to meeting the complex needs of a wide variety of professionals. Before joining Burns & Wilcox in 2008, Derigiotis was a professional liability underwriter at Argo Pro and Markel.
At Burns & Wilcox, Derigiotis specializes in employment practices liability insurance (EPLI), tech/cyber risks, lawyers, insurance agents, and miscellaneous errors and omissions. His depth and breadth of experience in underwriting these risks allow him to provide insightful commentary on trends and developments in each of these areas and to explain how his team crafts solutions to address emerging exposures.
EPLI explosion
Within Derigiotis’s areas of expertise, he says, “Without question, the most significant changes that have occurred over the last five to 10 years have been in EPLI and cyber risks. Those are both huge growth areas. Five or 10 years ago, many agents and insureds thought of EPLI as a discretionary or optional coverage. It was a newer product, and a lot of people didn’t understand it.”
“Many larger companies didn’t think they needed EPLI because they had a good human resources department, and smaller companies thought they knew their employees and were sure they’d never sue,” he continues. “Since that time there’s been an explosion in EPLI claims, and this product has come to the forefront in the insurance marketplace.”
A key factor that is driving an increase in EPLI claims, Derigiotis notes, is the economic downturn. With millions of jobs lost and the current unemployment rate at well over 9%, he says, employees who have been laid off may be quicker to allege discrimination or wrongful termination. “Some of the actions brought by employees may lack merit, but they still have to be defended,” Derigiotis says. “The expense of defending against this litigation can break a smaller employer. An EPLI policy will cover the costs of defense; and for companies of all sizes, having the coverage in place today is absolutely mandatory.”
Agents can play an important role in educating their clients about EPLI exposures and the need to obtain the coverage, Derigiotis observes. “Agents need to understand the product and also to understand their clients’ EPLI exposures,” he says. “EPLI is a product that has to be cross-sold with other lines of insurance; it’s not something that can be looked at as an extra. EPLI is commonly packaged with D&O or E&O for both nonprofit and for-profit risks.”
For agents who work with smaller insureds, Derigiotis sounds a note of caution. “Sometimes a BOP will include EPLI, but the limit is so low and the coverage is so narrow in scope that I advise agents not to feel comfortable with it.”
Tech and cyber risks
Business use of the Internet has expanded dramatically, and companies that just a few years ago had no presence on the Web are mastering the technologies needed to communicate with clients and transact business in cyberspace.
“Ten years ago, the launch of the dot-com era brought about a huge change in the way companies did business,” Derigiotis says. “There has been an exponential growth in Internet marketing. With more companies using the Internet as a platform to advertise their services, there has been an increase in the number of Web site designers, database administrators, and computer consultants.
“As a result, there has been a substantial increase in the tech E&O exposures of almost every industry. The tech E&O line has really exploded in the last 10 years,” he says, “and we continue to see significant growth in tech E&O exposures and demand for the coverage.”
Many people, including agents, use the terms “technology risk” and “cyber risk” interchangeably, Derigiotis remarks, “but they’re really very different. “Tech E&O covers errors and omissions for someone who provides service for any kind of computer system: database administrators, software engineers, computer consultants—people who are hands-on with either computers or the software they run,” Derigiotis explains. “People who do this work are vulnerable to claims alleging improper design or installation of software or negligent advice which results in an economic loss to the business to which services were provided.”
For example, he says, “Suppose a large online retailer pays a software engineer/consultant to advise, design and install software, to handle credit card transactions—and the work is not done properly. The retailer won’t be able to do business with the customers who want to buy its products online, and it will have a loss of revenue for whatever downtime it experiences.”
Hacker horrors
On the cyber risk side, Derigiotis says, the online use of credit cards is creating an ever-growing exposure with serious consequences for vendors, financial institutions, and consumers. The popular media abound with stories of hackers, dishonest employees, and others gaining access to customers’ credit card numbers and other information, resulting in identity theft and illicit purchases of everything from gas and groceries to plasma TVs and luxury cruises.
Insurers and intermediaries are developing products to help companies manage this exposure, Derigiotis says, and Burns & Wilcox is committed to making coverage available and helping agents explain it to their clients.
“There are a few products on the market right now, and these are known as cyber or data breach policies,” he explains. “This is a stand-alone coverage form that is designed to protect any company that maintains client information in its database either electronically or in paper form. It covers any kind of exposure that results in data being mishandled or stolen. It also covers the costs of notifying affected parties of a breach or potential breach.”
Derigiotis adds, noting, “Even if someone breaks into a system and doesn’t get any significant information that could result in identity theft, the business still has to notify people that there has been a breach. The policies also cover the cost of providing credit card monitoring services to those affected by a data breach, and some policies cover punitive damages where allowed by law,” Derigiotis says.
“I’m extremely excited about these new forms because of the scope of exposures they address. This is a must-have product for any business that deals with customers online or simply keeps any kind of records on their customers altogether,” he asserts. The coverage can be written on either an admitted or a nonadmitted basis, depending on the particular insured and its needs.
“CNA is one example of a carrier that offers an admitted product which can be geared toward larger companies,” Derigiotis says. “On the nonadmitted side, some of the carriers we work with have the ability to write very small companies with low revenue thresholds while offering a very broad form. Some nonadmitted markets also are able to offer very high limits and have the capacity to write larger risks as well.”
Miscellaneous E&O
Miscellaneous E&O, as its name suggests, covers the errors and omissions exposures of a wide range of professionals. “Miscellaneous E&O is probably one of the most competitive products around,” Derigiotis observes. “Everybody wants to write it because it’s extremely profitable business, for the reason that not many claims are filed.
“Miscellaneous E&O can cover the spectrum of professional service providers, from the relatively low-level risk of a consultant who advises a newspaper company on what kind of ink to use to the high level of risk faced by a debt collection agency or repo company,” he explains.
Miscellaneous E&O is available on both an admitted and a nonadmitted basis.
Insurance agents E&O
Like retailers, financial institutions, and other businesses, agents and brokers face an increasing exposure to the risks associated with having a Web presence and transacting business online. Their databases are full of sensitive information and are vulnerable to breach by hackers or dishonest employees. As more agencies go paperless, Derigiotis remarks, they must take extreme care not only to protect client data but also to document every exchange with a client or prospect.
“I’ve seen many claims where a client thinks he has coverage for something but the agent didn’t document the client’s request for an endorsement or an increase in limits,” he says. “The request was never forwarded to the insurer, so when a loss occurred the agent had to tell the client that it wasn’t covered. Agents must ensure that every request and communication is properly documented, whether it’s a phone call, an e-mail, or a face-to-face conversation. Failure to document is the biggest reason for E&O claims against agents,” Derigiotis declares.
Lawyers professional liability
“Lawyers are definitely a higher-hazard area of professional liability,” Derigiotis says. “A key underwriting factor is the law firm’s specialty or practice area. A firm that is engaged in any kind of plaintiff litigation presents a much higher risk to the insurer; examples are medical malpractice and product liability firms. Also viewed as higher hazard are firms that deal with intellectual property, like patent and copyright lawyers,” he explains.
“If you represent a client who has invented a product and you’re working with the client to patent the product, you have to follow every step in a very lengthy process,” Derigiotis says. “Suppose you miss a deadline or make an error so that the patent isn’t filed in time, and in the meantime a competitor obtains a patent for a similar device and sells it for millions of dollars. For many inventors, their product is the result of a lifetime’s work and sacrifice. As the lawyer who failed to secure the patent, you could be sued for huge sums of money,” he says.
“Another important factor is the law firm’s location,” Derigiotis says. “The hazard is much higher for firms located in the coastal areas of Texas and southern California where the environment is significantly more litigious than in other parts of the country. Insurers that write business in these areas have taken huge hits on claims,” Derigiotis explains. “They are actually known as judicial hellholes. In venues like these, if a lawyer doesn’t get the award or settlement that the client expected, he can be sued for negligence by the plaintiff and the insurer may have to pay an astronomical amount to settle the claim.”
Plaintiffs also can sue lawyers for negligence for failing to file a legal action in a timely manner as required by a particular state’s statute of limitations, Derigiotis points out. What’s more, he says, “In plaintiff litigation there is a docket system, which is basically a calendar that keeps track of cases and the dates by which filings have to be made. Even if a lawsuit is completely frivolous and would have been thrown out by the court, the lawyer is liable for damages if he or she failed to file the action by the required date.”
Despite these challenging exposures, Derigiotis says, “Some markets will write lawyers professional liability on an admitted basis, and some solo law firms can be insured for as little as a thousand dollars.”
Support for agents
For retail agents and brokers who don’t specialize in professional liability, Burns & Wilcox offers support and solutions.
“Our professional liability division is growing, and we’re aggressively pursuing business,” Derigiotis says. “We work mostly with retailers who are not specialists in professional liability. The exciting and beneficial part of Burns & Wilcox is that we have an entire division of specialists dedicated to professional liability and we are available to help our agents understand the exposures and present appropriate coverage solutions to their clients.”
For more information:
Burns & Wilcox
Web site: www.burnsandwilcox.com |
