GETTING BACK TO BASICS
Part One: Understanding Basic Legal Terms
Whether a professional becomes the subject of a Claim or lawsuit, or finds they are about to be a witness, it would be helpful to have an understanding of some basic legal terminology. Many times, people don't know what they don't know. They may be unsure of what questions to ask. They may be intimidated by the prospect of speaking with attorneys. They may also feel a bit embarrassed about asking questions that demonstrate their own lack of knowledge.
If you are a professional that has been an expert many times, or who testifies in court on a regular basis, then you probably know all of the following terms. For the rest of the professionals, with no legal experience, this information should be helpful when you find yourself forced to navigate what can be choppy legal waters.
Appeal: The complaint to a higher court asking that a judgement or decision of a lower court be corrected or reversed, due to an error. An example is a plea to an appellate court for review of an order issued by a Trial court.
Arbitration: Referral of a dispute to an impartial third party, called an arbitrator. Parties to the dispute agree in advance to abide by the arbitrator's award issued after a hearing at which both parties have a chance to be heard and to call witnesses, and introduce evidence. It is believed that arbitration will resolve an existing dispute much faster than if that dispute was to be decided after a Trial in court.
Cause of Action: The grounds, claims, or allegations on which a Complaint, or legal action is based. Causes of action might include Negligence, Fraud, and breach of contract.
Complaint: The first document a Plaintiff files with the court to commence a lawsuit. It will list the facts, or statement, of the case, what the Defendant allegedly did wrong, and what the Plaintiff is looking to recover. In some states this is called a Petition.
Damages: That which the Plaintiff sues to recover in order to compensate them for the loss or injury caused by the Defendant. This is usually some form of monetary compensation. Fines, penalties, or injunctive relief would not typically be considered to be "Damages."
Demand: When one party seeks some kind of relief from another party. The relief sought can be monetary compensation or an order to take action, or to refrain from taking action.
Deposition: A type of Discovery conducted during a lawsuit. A witness gives oral testimony, under oath, which is later transcribed to be used as evidence. Testimony is outside the presence of a Judge or jury and is sought for the purpose of discovering evidence relevant to a lawsuit's issue.
Discovery: The steps taken, prior to Trial, during which both sides to a lawsuit gather knowledge that may pertain to that particular lawsuit. The process can help both sides turn up facts and information that they may not have been aware of and which can help them build their respective cases. Discovery may include sending written interrogatories, conducting depositions, and sending requests that certain documents be produced.
Duty: An obligation one party owes to another or a requirement to act in conformance with a certain standard of care.
Fraud: Conduct that is deliberate, dishonest, or malicious which is undertaken with an intent to cause harm, or damage, to another. Such conduct can also include intentional misrepresentation and concealment.
Injunction: A legal alternative to monetary damages in a civil suit. It involves a court ordering a party either to take an affirmative action or to restrain a party from taking a particular action.
Interrogatories: A list of written questions about any non-privileged matter that is relevant to claims and defenses at issue in the lawsuit submitted by one party (the Plaintiff or the Defendant) to the other party as part of the pretrial Discovery process. The recipient must answer the questions in writing, usually under oath, and within a specified period of time (for example, within 30 days after being served with the interrogatories).
Mediation: The process by which a mutually agreed upon third person assists adverse parties in adjusting or settling their dispute. The process is informal and does not involve witnesses, or the production of evidence, such as what might transpire in an arbitration.
Motion for Summary Judgement: This motion asks the Judge to make a decision on the case without going to Trial. Such a motion can only be filed if none of the facts of the case are in dispute, all that needs to be decided is a final legal ruling on the case. Typically, a Judge will not permit a Motion for Summary Judgement to be filed until the Discovery process has been concluded. This means that neither side can gather any more evidence to help their case. If available, a Motion for Summary Judgement can save both sides time and expense associated with a Trial.
Negligence: The omission to do something which a reasonable person would or would not do, based on considerations which ordinarily regulate the conduct of human affairs. Negligence involves failure to use a degree of care considered reasonable under a given set of circumstances. Acts of either omission or commission, or both, may constitute Negligence. The four elements of Negligence are a duty owed to a Plaintiff, a breach of that duty by the Defendant, proximate cause, and an injury or damage suffered by the Plaintiff.
Settlement: Resolving disputes prior to Trial. Settlements typically involve some payment by one or more of the Defendants to the Plaintiff. The details of any Settlement can be kept confidential. Settlement agreements usually include terms which state that payment made by any Defendant should not be construed as any admission of fault or liability.
Statute of Limitations: Time frame set by legislation prescribing the period within which certain types of complaints must be filed. This period usually begins to run from when the professional services are completed or from when the alleged injury or damage occurs. Sometimes, courts may postpone the triggering of a Statute of Limitations where the Plaintiff does not yet know about the claim. Applying the "discovery rule," some courts hold that the Statute of Limitations begins running when the Plaintiff discovers that he or she has a Claim or from when he or she realizes they have been damaged.
Subpoena: An order directed to a person requiring attendance at a place and time in order to give testimony as a witness. It may also direct that the witness produce documents that will be used as evidence.
Summons: A form of notice and instruction that must be served along with a Complaint. The form contains important information like the location of the court where the lawsuit is pending and how long the Defendant has before a response must be filed.
Trial: A Trial is the examination of issues between the parties, whether they be issues of law or of fact. A Trial is the process of deciding the manner in which a dispute will be resolved. Witnesses, and evidence, are presented, in court, before a Judge or a jury. A final decision is rendered in the form of a judgement. If it is believed the judgement was reached, in error, an Appeal to a higher court might be filed.
Over the years, we have found the vast majority of the insured professionals we speak with lack a basic understanding of legal terms. When reporting a claim, or potential claim, the insureds are nervous, but perhaps if the professional understands a little more of the terms and concepts involved, it will help them to be more knowledgeable about the process.
Part Two: Understanding your E&O Insurance
The vast majority of professionals only have a vague idea about what their insurance covers, what it does not cover, what they have to report to their carrier, etc. We even encounter a few who lack any understanding of their E&O policy. In most circumstances, a professional secures insurance because it is required. They may choose an insurance company from an ad, or due to a recommendation from a professional organization, or maybe from a colleague.
By understanding some basic insurance terms, the professional will have a better idea of what their policy covers before they might be forced to get a quick education due to the fact that they have to report a Claim.
First, it is important to address a few general concepts:
Professional Liability v General Liability:
Professional Liability, also known as Errors and Omissions Liability, is insurance written to cover liability arising from some kind of mistake in the rendering or failure to render professional services. This coverage is written in a way that is tailored to the needs of the specific profession.
General Liability is insurance issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of an accident, or unexpected occurrence during the operation of their business.
Claims Made vs Occurrence Coverage:
Professional Liability insurance is written on a Claims Made and Reported basis. This means a Claim must be both made against the Insured, and reported to the insurer, during the policy period for coverage to apply. Most claims made and reported policies provide post policy "windows," which allow insureds to report claims to the insurer within 30 to 60 days following policy expiration.
Most General Liability insurance is written on an Occurrence basis. For coverage to be triggered there must be an accident, during the Policy Period, that causes bodily injury or property damage to a third party which is neither expected nor intended from the standpoint of the Insured. The Claim might be made long after the policy expires. Coverage is determined based upon the date of the Occurrence giving rise to the Claim.
Claim: A demand by an individual or corporation to recover, under a policy of insurance, for loss that may fall under the coverage provided by that policy.
Consent to Settlement Clause: A provision found in professional liability insurance policies that requires an insurer to seek an insured's approval prior to settling a Claim for a specific amount. However, if the Insured does not approve the recommended figure, the Consent to Settlement Clause typically states that the insurer will not be liable for any additional monies required to settle the Claim or for the defense costs that accrue from the point after the insurer makes the Settlement recommendation.
Damages: That which the Plaintiff sues to recover in order to compensate them for the loss or injury caused by the Defendant. This is usually some form of monetary compensation. Not all Damages sought by a Plaintiff are “covered” under the terms of a professional liability policy. Fines, penalties, return of professional fees, and punitive damages would not typically be covered "Damages" under most professional liability policies.
Declarations Page: The front page (or pages) of a policy that provides key information about the policy including the policy number, the named insured, the insured’s address, the policy period, the policy limits, the deductible amount and the premium.
Deductible: That portion of the insured loss (in dollars) that must be paid by the policy holder. Most insurance policies contain a per-claim deductible provision in the policy declarations. This amount will be subtracted from each covered loss and must be paid, upon demand, by the insured.
Endorsement: An amendment to a policy that serves to change policy coverage. Endorsements may serve any number of functions, including broadening the scope of coverage, limiting or restricting the scope of coverage, clarifying the application of coverage to some unique loss exposure, or even adding other parties as insureds. Endorsements take precedence over the language set forth in the policy form.
Exclusions: Those specific claims or circumstances that are not covered under the terms, provisions and coverages set forth in the policy.
Extended Reporting Period/ERP: A designated time period after a claims-made policy has expired during which a Claim may be made and coverage triggered as if the Claim had been made during the Policy Period. There is an additional fee/Premium required for this coverage beyond the Premium paid for the expired policy.
Insured: The person(s) and/or entity afforded coverage under the terms of an insurance policy.
Limits of Liability/Per Claim and Aggregate: The total amount of coverage provided for under the policy. The per claim and aggregate limits may be the same, or the Insured might pay an additional premium to secure higher aggregate limits which would be applicable if more than a single Claim was made during a Policy Period. The insurance company is not obligated to make any additional payments once the Limit of Liability has been exhausted. The Insured would be legally liable to make any loss or expense payment above the policy limits.
Policy Period: The specific time period during which insurance coverage is in effect.
Premium: The amount of money an insurer charges to provide the coverage described in the policy.
Prior Acts/Retroactive Coverage: A date, earlier than the inception date of the policy, which serves as a coverage trigger. For coverage to apply the act, or omission, giving rise to a Claim must take place after the policy “Prior Acts” or “Retroactive Date”. This date is specifically noted on the policy Declarations Page.
If you are doing business as a professional, most clients will require you to provide proof of Professional Liability insurance. Every professional should understand what their insurance covers, and what it does not cover. It is important to understand how Professional Liability insurance differs from other insurance you might purchase for your business, such as General Liability insurance.
An insurance policy can be intimidating. The Declarations Page is often followed by 10, or more, pages of “legalese,”and that doesn’t even include the Endorsements.
No one needs to become an expert; but, understanding some of the basic terms you will find in your policy will enable you to be an informed insurance consumer. It will also help you to understand how your insurance can provide assistance to you in the event you are the target of a Claim.