What Happens After You Report a Professional Liability Claim?
Reserving Procedures
By law, once a claim is reported, an insurer must segregate or reserve funds anticipated to be required to resolve the claim. This requirement is intended to keep insurers solvent and to have the resources necessary to pay the obligations assumed under insurance contracts. The reporting of a circumstance that could lead to a claim, however, causes only a token reserve for expense-tracking purposes to be established. Once a claim is brought against you, your attorney will analyze the liability and damages issues presented and work with you and and your carrier to develop a resolution plan based on the facts and circumstances of your case, as well as applicable laws and procedures. Your carrier will establish a reserve as soon as reasonably possible based on this realistic sense of your potential exposure and a careful analysis of the value of the claim. From this, a strategy for resolving the claim can be established. When there is a better understanding of the projected cost of a claim against you, you can work with the claim professional to plan the appropriate defense strategy or settlement negotiations.
Proper reserving can help resolve claims more quickly, and helps to create a position of strength in negotiation. Finally, a realistic evaluation of the insurance cost of a claim provides firms with valuable information. Such information helps firms adapt practice techniques, contract language, and risk management procedures so that similar situations are less likely on future projects.
Reservation of Rights Letters
At times, allegations in a complaint against your firm might not be covered by your professional liability insurance policy. Depending on how a claim is worded, your carrier may not be able to determine its obligation to pay on your behalf under your policy based on one or more specific allegations. When coverage questions arise as to specific allegations, your carrier will notify you through use of a “reservations of rights” letter. If a reservation of rights letter is issued, The harsh and accusatory terms often used reflect the elements that must be established to prove negligence.
The tone, language, and number of allegations may reflect an attempt by the plaintiff’s attorney to induce a quick settlement.
Understanding the Claim Process
Your carrier will continue to defend you until the coverage question is resolved. A reservation of rights letter may, in fact, cause the plaintiff to refine its allegations to limit your exposure, or to settle a claim when there might be multiple allegations that, even if proven by the plaintiff, would not result in a recovery.
You typically will not receive such a notice without first having discussed the matter with your claim professional. If you have questions about the reservation of rights, call your claim
professional, and/or consult your personal counsel. While personal counsel may involve an expense, this added source of expertise can ease the burden of bearing these responsibilities on your own.
If you think you may have a claim situation please report it to your agent or carrier immediately. For more information please contact your agent or contact Professional Underwriters, Inc. here.