Study 5 - Professional Liability Flashcards
Professional
Someone who possesses distinctive qualifications and conforms to the technical or ethical standards of a profession
Professional Liability Insurance
Protects professionals against liability for damages and the cost of defence arising from their alleged or real professional errors or omissions in the practice of their profession
Determining if there a professional liability exposure
Occupations not generally perceived as having “professional” status have an exposure because they provide a certain level of specialized service.
Ask; does the client provide expert advice to a third party for a fee?
Examples of Professionals
- Lawyers
- Doctors
- Accountants
- Architects
- Veterinarians
Professional Negligence
- Exists where the professional is found to owe a duty to the client, and he or she breached that duty.
- More specifically, the professional failed to exercise the standard of care to which a professional is held in the execution of his or her professional services.
Standard of Care
A code of conduct prepared by associations and other recognized groups of authority that can be referenced to define what the conduct should be for a particular group
Professional Associations
- Operate as the educational and regulatory body for the professional group they represent
- Define the rules of their practice
- Often enact codes of professional conduct to define the ethical obligations of their practitioners
Rules of Conduct
- Each profession carries with it a specific set of rules and guidelines that practitioners are expected to follow
- The rules of conduct for one profession may be radically different from another
Informed Consent
- In medical context, the issue of informed consent must be understood
- Informed consent must be granted by a patient to a doctor for any medical procedure
- Without consent, the doctor may be committing battery that could give rise to liability under tort law
Duty of Care
The obligation that a person has to exercise reasonable care with respect to the interest of others, including protecting them from harm.
Professionals owe a duty of care to clients, and in some cases that also owe a duty of care to non clients
The duty of care was expanded in the case of Hedley, Byrne & Co. Ltd. v Heller & Partners Ltd. (1963).
Audit
An examination of evidential matters to determine the reliability of a record of assertion.
A systematic investigation of records, documents, systems, operations, and transaction records and a physical inspection of inventory performed by qualified accountants (called auditors).
In the case of a financial audit, it is a professional examination and verification of a company’s accounting documents
Claims against Accountants and Auditors
Claims against accountants might be launched by clients when audits have:
- failed to discover embezzlement
- failed to report uncovered fraud
- failed to disclose internal weaknesses; or
- failed to disclose or detect material misstatements in the financial statements
Claims launched by third parties have included:
- creditors who have relied on audit opinions to extend credit; or
- individuals who relied on audit opinions when purchasing a business
Tax Services
- Tax returns that are not prepared or filed on time may be subject to penalties and interest charges
- Income may been understated or overstated, producing an error in the tax calculation
Medical Liability
Medical negligence would arise if a doctor did not exercise a degree of care and skill that could reasonably be expected of a normal, prudent practitioner of the same experience and standing.
Doctors should know their limitations and make referrals to specialists as required.
Examples of claims arising out of negligently performed medical treatments
- A hospital and doctor were sued when a sponge was left inside a patient after an operation
- A drugstore and pharmacist were sued when the wrong drug was used to fill a prescription
- A dentist was sued when the patient’s jaw was damaged by careless extraction of a tooth
Errors & Omissions Insurance
- An insurance form that protects the insured against liability for committing an error or omission in the performance of professional duties.
- Generally such policies are designed to cover financial losses rather than liability for bodily injury or property damage.
3 Features of Most Professional Liability Policies
- They are written on claims made and reported basis
- They contain an annual aggregate limit. Generally, all coverages under a professional liability policy are subject to an annual aggregate limit of liability
- They usually only cover the non-bodily injury or non-property damage type of losses. For example, a home appraiser is hired by a property manager to assess the value of a home. The home is destroyed by fire, and it was found to be significantly undervalued. A claim can be brought against the home appraiser and the insurance broker for the uncovered loss
Fraud
1) Methods used to deceive to cause an unwarranted favourable decision for one’s own benefit
2) Deliberate misrepresentation or misstatement
3) Concealment of facts that should at the time be made known
Lawsuits against brokers have included:
- Failure to procure insurance
- Providing improper or inadequate coverage
- Failure to notify the insured when the broker was unable to place the risk
- Failure to act promptly to place the coverage
- Failure to keep the policy in force
- Failure to notify an umbrella insurer of a claim under the CGL policy
- Misrepresentation
Loss Prevention and Control
- Comprehensive and thorough approach to understanding clients and their business
- Understanding the laws that apply to insurance brokers
- Understanding and staying within the scope of the broker’s expertise, whether that be as a general insurance broker or a specialist
- Conflict of interest training and prevention strategies
- Privacy and confidentiality training and IT processes
- Commitment to continuous learning to ensure brokers are keeping current with trends and coverage developments
- Peer reviews and audit process
Underwriting Considerations
- Applications (named insureds, description of the professional services provided, associated third-party fees from those services)
- Professional Qualifications (specific legislation and regulations that govern the business or individual practitioners involved, what licenses are required)
- Details of services provided
- Loss Experience
- Familiarity with Documents
- Contracts Review
