We all know that the first step toward placing professional liability coverage is to have the client complete the appropriate application and supplements. The application affects not only the underwriting, rating and pricing of the risk, but it also can affect the possible rescinding of a professional liability policy.
There are as many professional liability applications as there are companies writing the class. Most underwriters are willing to quote off someone else’s application and routinely require completion of their own application prior to binding or within a set number of days thereafter. Quotations and/or indications are usually released with a disclaimer stating that, in the event the information contained in the carrier’s own application deviates from the information previously provided, the carrier may, at its discretion, adjust or withdraw the quote and/or indication. While there are some differences among the forms due to specific underwriting guidelines adopted by each carrier, most professional liability applications include some basic information. The miscellaneous professional liability application is likely to include:
Name and complete address. Some applications require the applicant to include the county where he or she is located. Some classes of business, such as lawyers professional liability or assisted living facilities, are “county sensitive” because of the high litigious activity in those counties. The county where the risk is located may be a factor in the acceptance, underwriting and pricing of the risk.
Form of business and date established. This is important to the underwriting process because it gives the underwriter information about the applicant’s experience.
Narrative of professional services. This is critical to the transaction because only the professional services noted on that question will be considered for coverage. Most professional liability policies note on their declaration page the professional services the policy covers. The retail agent must discuss and review that question carefully with the client prior to submitting the application. Stay away from answers like, “see Web site.” While the Web site provides valuable information, its contents can be altered or augmented indiscriminately. An underwriter cannot underwrite a Web site. The proposed insured needs to advise the underwriter what professional services need to be covered. The underwriter also needs to know and address by exclusion or otherwise whether the applicant is involved in any other business.
Revenues. The revenues question is important because professional liability policies are normally rated based on revenues, per $100s or $1,000s, depending on the size/class of the risk. It is important to note that if the applicant has revenues coming from activities other than professional services, the appropriate breakdown should be noted. The carrier normally wants to see revenues for the past 12 months and estimated revenues for the next 12 months to measure the growth/decline trend and address it. New ventures need to estimate that dollar amount.
Number of employees and professionals. The number of employees and professionals is also a rating/pricing factor in many professional liability classes, so all applications require this information. The use of independent contractors creates additional exposures, and the underwriter needs to know of any, and in many cases, whether those contractors carry their own professional liability insurance.
Prior carrier section. This shows consistency and responsibility on the part of the applicant. The most important information usually included in that section is the effective date of coverage and the retroactive date; it is critical to preserve the latter. A complete professional liability submission must always include a copy of the expiring declarations page where the limits, deductibles and/or SIR’s, effective and retroactive dates can be corroborated.
Claims/warranty questions. These are usually found at the end of the application. They deal with known claims and/or incidents the applicant is or may be aware of. The answers to these questions should never be underestimated as they may determine coverage grant, denial or rescindment of the contract. If there are claims, a claim supplement must be completed and currently-valued loss runs attached.
Attachments. While not all applications list the required attachments for the underwriting of the risk, the usual necessary attachments include resumes on all professionals and a sample copy of the agreement and/or contract used by the applicant with its clients.
Signature. The signature on the application is normally that of an authorized representative of the insured. Naturally, completing and signing the application does not bind either party to release terms or to accept them.
Most of the above information is usually required by a P/C underwriter working on a commercial risk, so why is the professional liability application so important?
The application becomes part of the policy. In fact, the application is a warranty and/or representation of the applicant. All information contained in it, as well as its attachments, are deemed “material,” meaning that the information is sufficiently important to have an impact or directly affect the underwriter’s decision to accept and rate/price the account accordingly and subsequently issue an insurance contract based on it. On the other hand, it may cause the underwriter to reject it or to release different terms.
Claims have been denied based on information included in or omitted from the application. Policies also have been rescinded for the same reasons. Therefore, it is important to stress that the applicant must complete each question on the application carefully, candidly and thoroughly. The insurance professional must review the completed application and discuss any discrepancies with the applicant prior to submitting it for terms.
After all, the application can be the difference between a covered claim, a denied claim or a policy rescindment.
Rocio L. Orta is a professional liability under-
writer with 20 years of experience. She heads the
professional liability division at WSS-Pasadena
and is a member of the PLUS Southern
California Chapter Steering Committee. She
authors the WSS Professional Liability monthly
newsletter, “Professionally Speaking.”
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