Tuesday, June 19, 2012

Watch out for that hammer!

Have you read through your professional liability insurance policy?  Probably not. After all who likes to read insurance policies? Often times we find that firms just want coverage in place regardless of what that coverage really is.  If it's cheap and 'good enough' they often take the policy.  While that may be temporarily good for their bottom-line, in the long run they are really just hurting themselves.  Unfortunately, you never know how good your insurance is until you need to use it.

Don't let yourself be surprised about your policy when you find that it doesn't cover you for XYZ.  All professional liability policies are similar, but they all are different too.  Each insurance company drafts their insurance policy with a few unique bells & whistles. You need to read your policy to know what it is you are buying.

One policy feature that I want to touch on today is the 'Hammer Clause'.  This is a provision included by insurers in some consent-to-settlement clauses to encourage the insured to accept a recommended settlement offer.  It provides that if the insured refuses a settlement offer recommend by the insurer, the insurer's liability is limited to the amount of the recommended settlement offer.

Example: The insurer recommends a settlement offer of $100,000.  The insured refuses the offer, and the claim results in a judgement of $200,000 against the insured.  The insurer will only pay $100,000, less any deductible. The insured is now responsible for $100,000, plus any deductible amount.

This may not seem fair to some firms.  Your name and reputation are on the line if a malpractice suit is brought against your firm.  If you know you are right, and just accept the offer because you don't want to be on the hook for the remaining settlement money, you are then admitting liability.  Look for insurance policies that remove the 'Hammer Clause', and modify the consent to settle provision so that it is in your firm's best interest.

There are many other intricacies of professional liability insurance policies, but that's for another post.  Have questions about your coverage or want alternate quotes?  Contact us toll free 800-727-0001 or www.ParagonUnderwriters.com.

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