By Jeff Forbes
In the insurance world, there is a very fine line between professional liability and general liability. While some claims easily fall into one category or the other, there is also significant gray area in between the two. This gray area can easily lead to disputes between insurance carriers as to which one has responsibility for responding to a claim, leading to the policyholder feeling like a hot potato being passed back and forth while facing the prospect of major litigation.
General
General liability insurance policies are meant to protect companies from lawsuits from third parties alleging bodily injury or property damage as a result of the insured’s negligence. The classic type of general liability lawsuit is a slip-and-fall personal injury case at a retail store. Another example that might hit closer to home would be damages that result from installation and electrical work. The general liability policy will cover the costs of defending the lawsuit and any resulting settlement or jury verdict that is within the insured’s limits.
Professional
However, most general liability policies specifically exclude losses caused by professional negligence. Often called malpractice in the legal or medical worlds, professional negligence involves the failure to exercise the proper level of care given one’s specialized experience in a particular field. For integrators, this would often mean errors in the design or programming of a control system.
As a result, integrators often need to purchase professional liability insurance in addition to general liability coverage. Unlike general liability coverage, professional liability coverage will often protect companies against consequential damages – economic damages that result from the failure to perform a contract up to the required specifications.
Many professional liability policies only cover economic damages and don’t include bodily injury or property damage. But in professions that can result in bodily injury or property damage and economic damages, having the right coverage blend can be tricky.
What’s the difference?
Whether a claim is classified as a professional liability case or a general liability case can have significant consequences for how and who responds to it. Professional liability policies are written on a claims-made basis, meaning the current policy will respond to the claim regardless of when it occurred (provided it occurs after the policy’s retroactive date).
General liability policies are written on an occurrence basis, meaning the policy that goes in effect when the negligence occurred is the policy that will respond. Classification will also affect which deductibles apply, which limits of liability will apply and whether an excess policy will step in if a primary policy is exhausted.
Here’s an example
For example, imagine a company with a $1 million per occurrence general liability policy, a $2 million professional liability policy and a $4 million excess liability policy that sits over their general liability coverage. If that company is sued for $3 million, the determination of whether the claim falls under professional liability or general liability will determine whether the claim is fully covered by the company’s existing insurance or if the company will potentially face a $1 million uninsured liability.
CSIA can help
The complications that can arise from conflicting coverages regarding professional and general liability led CSIA to help develop a unique insurance coverage for its members combining the professional and general liability into a single policy; this helps avoid coverage disputes between carriers at vulnerable times for your business.
Jeff Forbes is a blog contributor specializing in risk, legislation, regulations and casualty topics for ECBM Insurance Brokers and Consultants, headquartered in Media, Pennsylvania. He can be reached at jforbes@ecbm.com.