Vince purchased his lawyer’s professional coverage in a package policy that included property, general liability, and professional coverage. Sixty days before its renewal a notice was sent by his carrier alerting him that professional coverage was being discontinued on the renewal. The renewal policy was issued as indicated without professional coverage but with a significant reduction in premium. Three years later, when he realized a professional claim might be presented, he sued his carrier to provide professional coverage retroactively.
See how the courts responded to his argument that he had no knowledge that his professional coverage had lapsed.
Vince Sicari (Sicari) operated his own law practice in New Jersey. He purchased a twelve-month insurance policy from The Hartford Insurance Company of the Midwest (Hartford) which was effective July 31, 2010. The policy included property, liability, and lawyers professional. The annual premium was $2,728 for the 2010 policy.
On May 31, 2011, 60 days prior to the renewal date, Harford reportedly mailed a letter to Sicari informing the attorney that there would be a reduction in coverage with respects to the lawyers professional. Attached to the letter was a notice that Harford was no longer including lawyers professional as an endorsement to their policy.
On June 21, 2011, Sicari signed a renewal application for lawyers professional liability and submitted this to the insurance broker. The broker forwarded the application to Hartford on July 13, 2011. Hartford did not respond to the application and issued a renewal policy for property and liability only. The annual premium was $663. This policy was also renewed. The 2011 and 2012 policies provided commercial general liability and business personal property; there was no lawyers professional liability coverage.
Sicari began receiving correspondence regarding professional liability from several insurance providers in June 2013. He contacted his broker and inquired about his own insurance. A few weeks later, the broker informed Sicari that his lawyers professional liability had lapsed. In July 2013 Sicari discovered a potential professional claim against him.
Sicari sued Hartford in the hopes of compelling Hartford to provide professional coverage in accordance with his June 2011 renewal application, retroactive to that date. Reportedly, Sicari became aware of the May 31, 2011 letter during the discovery process for this case. Sicari claimed to have no knowledge as to his lapse in coverage.
Hartford argued that the May 31, 2011 letter was proper notice of nonrenewal. Hartford also believed that Sicari should have been further alerted to a change in coverage based upon the difference of $2,079 in premium.
The trial court ruled in Hartford’s favor. Sicari appealed. The decision was affirmed.
Vince A. Sicari v. The Hartford Insurance Company of the Midwest, Docket No. A049215T1, Superior Court of New Jersey, Appellate Division, May 10, 2017.
Cancellation conditions are part of every policy. They explain the circumstances under which policies can be cancelled and the manner in which the cancellation notice must be provided. Non-renewal conditions are not as universal. While some policies may contain information regarding when and how a policy can be non-renewed, many do not. Fortunately for the majority of insureds, many states have established mandatory non-renewal requirements that companies have incorporated into amendatory endorsements.
Read the PF&M analysis of the IL 00 17-Common Conditions which contains a cancellation condition but not a non-renewal one.
Most Insurance Service Office (ISO) commercial lines policy require that IL 00 17–Common Policy Conditions be attached to the policy in order to complete the contract. It contains six conditions:
- Inspection and Surveys
- Transfer of Your Rights and Duties under This Policy
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 person that can cancel on behalf of the insured. The only thing he or she must do in order to cancel a policy is to mail or deliver the policy to the insurance company before the actual date of cancellation.
|Example: Jade’s policy runs from 01/01/16 to 01/01/17.
Scenario 1: Jade decides to merge her business with another on 05/01/16. She sends her policy to her agent on 04/15/16 and requests that the policy be cancelled as of 05/01/16. Cancellation will be effective on 05/01/16.
Scenario 2: Jade decides that she does not like this coverage, sends the policy back to her agent on 04/15/16, and requests that it be cancelled as of 03/01/16. In this scenario, cancellation will not be effective on 03/01/16. The cancellation date will not be earlier than the date the insurance company receives the request.
The insurance company can cancel by mailing or delivering a written notice to the first named insured at its last known address. The notice must be either mailed or delivered at least ten days prior to the cancellation date when the reason for cancellation is nonpayment of premium. The named insured must receive at least 30 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.
|Example: Faith and Fidelity Insurance Company mails a notice of cancellation to Problem Insured on 04/15/16 to be effective on 05/01/16.
Scenario 1: The reason for cancellation is nonpayment of premium. The cancellation is effective 05/01/16.
Scenario 2: The reason for cancellation is uncooperative spirit. The cancellation cannot go into effect because the notice period is too short. The policy continues in force.
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 a possibility. The cancellation is in effect even if the insured did not receive the return premium. Proof that notice of cancellation was mailed is all that is needed to effect cancellation. Proof that the first named insured actually received the notice is not required.
Related Court Cases:
Cancellation Held Not Effective When Notice Addressed
Cancellation Validated by Proof Mailing of Notice
Cancellation Notice to Address of Record Held Valid
Was Cancellation Notice Timely?
The policy that the insurance company issues 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.
|Example: Fergus Farms wants to add a new operation to its policy. It sends an email to its agent and promptly forgets about it. A building that is part of the new operation is damaged six months later. Fergus sends a claim notice to the insurance company. The company denies the claim because it denies knowing anything about the new operation. The company also notes that an endorsement was not issued and a premium was not charged.|
Related Court Case: Handwritten Changes to Declarations Create Coverage Dispute
C. EXAMINATION OF YOUR BOOKS AND RECORDS
The insurance company has the right to review the named insured’s books and records. However, this right is restricted to only those books and records that relate to this coverage form. This right extends throughout the policy term and for up to three years after.
D. INSPECTIONS AND SURVEYS
The insurance company has the right to make inspections and/or conduct surveys. It then may also provide reports and recommendations to the named insured.
This right is intended for the insurance company’s benefit. The inspections and surveys are not intended to be safety inspections for the benefit of third parties or employees. They should not be viewed as either a warranty or a representation that the named insured complies with any safety or health codes.
This condition applies to the insurance company that provides coverage as well as to any rating advisory organization. The only exception to the inspection being only for the insurance company’s benefit is when the insurance company agrees to provide mandatory boiler, pressure vessel, or elevator inspections.
|Example: Grand Insurance Company insures Toggle Enterprises. Grand inspects the premises and submits five different recommendations to Toggle. Toggle does not comply with any of them. Maria is injured because of a condition that Grand’s inspection identified and submitted to Toggle. She sues both Toggle (for her injury) and Grand (because it knew about the condition but did not force Toggle to comply with it). Grand can use this condition to defend itself against Maria’s claim.|
The first named insured is the party that pays the premiums and receives all return premiums.
|Example: John Smith, Mary Smith, Roger Lyons, and Felicia Brown are the named insureds on the policy issued by Metropolis Insurance Company. John collects $1,500 from each of the other named insureds and pays the $6,000 policy premium. The insurance company cancels the policy mid-term and returns $3,000 to John. He keeps the money. Mary, Roger, and Felicia do not have any recourse against Metropolis for their portion of the return premium.|
F. TRANSFER OF YOUR RIGHTS AND DUTIES UNDER THIS POLICY
The named insured does not have the option to transfer its rights and duties under the policy to anyone.
Related Court Case: Assignment of Policy Is Not Valid Without Insurer Consent
There is one exception and it applies only when a named insured is an individual. When that named insured individual dies, all rights and duties transfer to a legal representative. This transfer is limited because such representative has such rights and duties only while operating in the capacity of the named insured’s legal representative. This means that the legal representative is not covered for any actions outside that capacity.
|Example: Paul is the named insured. He named Jim as his legal representative if he dies. Paul dies. Jim continues to operate Paul’s business in order to maintain its value until it can be sold.
Scenario 1: The business and Jim are sued. Jim is covered because he operates in his role as Paul’s legal representative.
Scenario 2: Jim is sued because a child is injured at his home. There is no coverage because the injury is not related to Jim’s role as Paul’s legal representative.
Starting with a template can make comparisons easier
ISO has developed a standardized lawyers professional policy but because it was only recently introduced, most insurance carriers use proprietary forms. Because of how different forms are constructed, it may be difficult for a client to recognize important differences in coverage. Providing an easy to follow comparison may be helpful.
Review a coverage comparison template based on the ISO standardized wording your client may appreciate.
This form should be useful for documenting the differences among companies that offer lawyers professional liability policies. It can be used to record special endorsement limits, exclusions, other improvements, or any restrictions that apply.
Using this chart is not a statement of coverage it is a tool to help you and your client understand key differences. It is important to note that it will not highlight every difference that could impact coverage.
|COVERAGE||ISO||COMPANY A||COMPANY B||COMPANY C|
|Legally obligated due to wrongful act||Yes|
|Defense inside policy limits||Yes|
|Insurance company duty to defend ends when limits exhausted||Yes|
|Right to consent to settlement||Only named insured|
|All claims from same wrongful act are a single claim||Yes|
|EXCLUSIONS||COMPANY A||COMPANY B||COMPANY C|
|*Criminal, fraudulent, malicious, intentional or dishonest acts||Yes|
|Bodily injury and property damage||Yes|
|*Improper use of funds||Yes|
|Professional services not on behalf of named insured or predecessor||Yes|
|Professionals services provided by businesses owned by an insured or insured’s spouse that are not the named insured||Yes|
|Insured suing another insured||Yes|
|Violation of securities laws||Yes|
|Claims related to litigation that was pending prior to the date on the declaration||Yes|
|Deemed a public official||Yes|
|Personal and advertising injury||Yes|
|Claim reported on a prior policy||Yes|
|Insolvency of an insurance carrier||Yes|
|Insolvency of an financial institution||Yes|
|Fungi or bacteria||Yes|
|Abuse and molestation||Yes|
|SUPPLEMENTARY PAYMENTS (Outside Of Limits Of Insurance)||COMPANY A||COMPANY B||COMPANY C|
|Prejudgment interest prior to offer||Yes|
|Post judgment interest on total prior to payment of covered part||Yes|
|Limited spousal liability||Yes|
|Incapacitated insured’s estate as insured||Yes|
|Protection of innocent insured for * exclusions above||Yes|
|WHO IS AN INSURED||COMPANY A||COMPANY B||COMPANY C|
|Named insured is not stated to be an insured||Yes|
|Officers, directors, shareholder or members of the named insured||Yes|
|Past or present employees of named insured||Yes|
|Independent lawyer when retained as counsel||Yes|
|Lawyer who retired from named insured||Yes|
|Incapacitated insureds estates etc.||Yes|
|LIMITS OF INSURANCE||COMPANY A||COMPANY B||COMPANY C|
|Each Claim Limit|
|DEDUCTIBLE||COMPANY A||COMPANY B||COMPANY C|
|CONDITIONS (Not complete listing)||COMPANY A||COMPANY B||COMPANY C|
|If refuse to consent to settlement – payment by carrier is restricted to the amount of refused settlement amount.||Yes|
|Ninety day notice of new acquisitions and new lawyers||Yes|
|No premium refund when named insured acquired mid-year||Yes|
60 days-all other
|Conditions that apply when the insured selects is own counsel||Yes|
|EXTENDED REPORTING PERIOD||COMPANY A||COMPANY B||COMPANY C|
|Basic – 60 days automatic||Yes|
|Additional – 3 year after expiration of basic||Yes|
|DEFINITIONS||Yes||COMPANY A||COMPANY B||COMPANY C|
|Coverage Territory – US, territories and possessions, Puerto Rico, Canada
Rest of the world if suit brought in the basic coverage territory.
|Defense expenses – all of the following are defense expenses
This apply only if either or both of the following apply:
If the persons providing the services are not insurance company employees
The charges are allocated to a specific claims
|Employee – includes leased and temporary but not independent contractors||Yes|
|Professional Services – part of the named insured’s practice of law. The service must require a license and be a fiduciary capacity such as any of the following:
|Property Damage – the standard CGL property damage definition except damage to electronic damage is added to the definition. Therefore, because of this addition to the definition, electronic data is excluded from coverage.|
|Wrongful Act – has five parts:
|ENDORSEMENTS||COMPANY A||COMPANY B||COMPANY C|
Do your clients understand that they need professional coverage
Many individuals are involved in professional activities without necessarily understanding the unprotected exposure they are creating. The worst time to discover that gap is when a lawsuit is presented.
Here is an emarketing article that might get their attention.
Professionals, such as doctors, lawyers and accountants, along with a growing number of other occupations, need special insurance protection. Besides the grand old professions, pharmacists, architects, engineers, opticians, beauticians, insurance agents, and various types of consultants are targeted by lawsuits due to the high standard of accountability under which they operate.
In most instances, a general or commercial general liability policy will protect a business against damage or injury their actions may cause to others. However, this type policy is designed to handle loss associated with fairly generic and low-risk activities. Examples are customers who cut their hands on a sharp edge of an office’s reception desk or a customer who is hurt when she collides with a clerk who is stocking a shelf. Much more is at stake with professional activities such as the following:
Expert Status–Persons who need professional liability coverage are those whom the general public depend upon as experts. They provide assistance with special issues such as personal health, expensive business transactions, or personal crises. Many of these situations also involve a high-level of emotion. When something goes wrong, it is much more likely that a client will pursue “justice” through the courts.
Reputation–Any claim a client makes against a professional involves that individual’s reputation. In many instances, paying a claim bears the stigma of admitting to a mistake. The professional may suffer from a lowered status and could face sanctions from related professional associations or regulatory authorities. Further, many professionals are proud of their standing and their abilities; admitting being wrong is usually fiercely resisted.
Defense Costs–Defending against claims of professional error or incompetence is usually very expensive and time-consuming. Trials will generally involve expert testimony and technical arguments and the likelihood of resolving issues quickly (particularly via a settlement) is extremely low.
Identifying A Loss–The timing between when a loss occurs and when a claim or suit is filed can be a mystery. A professional may find out she’s being sued today for something that happened ten years ago. The potential for a huge time gap before a loss arises makes professional liability a very difficult type of business to underwrite and to price.
You have invested a lot in your business and your profession. It is important to be sure that you take the steps to deal with the special as well as the routine sources of loss. As usual, it is always a good idea to discuss your questions and needs with an insurance professional.