Understanding deductibles on Professional Liability policies for design firms. While this may seem like it is a simple concept it can become confusing when it comes to quoting or at the time of the claim.
First it is important to understand what a deductible is. A deductible is the portion of an insured loss to be paid by the insured before the insurance carrier will pay a settlement on an insured’s behalf. The deductible can be found on the declarations page of an insurance policy.
For small firms many times the deductible will be $0, meaning that if a claim were to occur the insured would not be paying a deductible on a settlement or for claims expenses. For mid size to larger design firms the deductible will vary depending on the size of your firm, ranging from $2,000 to $50,000 or higher. Note that deductibles on Professional Liability policies are within the limits of liability.
There are also different types of deductibles, first dollar and straight deductibles. First dollar deductibles are also called damages only deductible, meaning that the deductible applies to damages only and will not apply to claim expenses. A straight deductible or damages and claims expenses deductible is paid as soon as a claim is opened.
Another consideration on deductibles is there may be an aggregate deductible. The aggregate deductible is the maximum deductible amount your firm will pay in a policy period on multiple claims.
Pre-claim and supplementary payments are not subject to a deductible. If a potential claim (pre-claim) becomes a claim then the deductible will apply.
Many insurance carriers will offer a mediation credit. This means that the deductible will be reduced by a specific percentage as defined in the policy if your firm settles a claim though voluntary mediation.
As always, read your policy so you understand how much and what type of deductible your firm has. Your PUI agent is here to answer questions if you have them.