Like most professional industries the insurance industry uses lots of terms that may not be commonly used in your business. For that reason we have composed some common terms and definitions to help guide you through the wide world of commercial insurance.
Retroactive Date or Date/Prior Acts Date
A retroactive date or prior acts date is the date in which the firm first obtained professional liability insurance and has maintained coverage without a lapse in coverage.
An inside limit means there is no additional limit for defense costs outside of the per claim limit. Defense costs will erode the per claim limit.
An outside limit provides an additional limit of liability for defense costs. Some carriers provide a sub-limit for the outside limit and some provide an unlimited amount of coverage for defense costs in addition to the per claim limit. Defense costs will not erode the liability limit until the outside limit is exhausted.
A coverage feature that will provide coverage for the defense in the event of a bar or regulatory complaint. Each policy form differs in coverage language and payment amounts.
Earnings Reimbursements / Loss of Earnings
A coverage feature that allows you to receive a monetary payment for time spent in trial, court and arbitration/mediation for a malpractice insurance claim. Each policy form differs in coverage language and payment amounts.
Defined clearly in each policy form to show what types of professional services will be covered under that policy form. They differ greatly for each policy form, so extra attention to this section is strongly suggested.
Per Claim Deductible
Per claim limit means that your deductible will apply each claim to both the loss and indemnity.
Loss Only Annual Aggregate Deductible
This deductible is a combination of the first dollar defense and annual aggregate deductible. The loss only annual aggregate deductible applies only to the loss and is the maximum amount you will pay during a policy period, regardless of the number of claims within the policy period.
First Dollar Defense Deductible
First dollar defense deductible provides coverage for defense expenses related to a claim from the first dollar. This allows the deductible to be applied only if the firm experiences a loss.
Claims Made Policy
A claims made policy form requires that the claim be made against the insured and reported to the carrier during the policy period. The error must have also occurred after the retroactive date/prior acts date for coverage to apply.
Each policy form defines predecessor firm slightly different, but the most common definition is when the successor firm brings forward the majority liabilities and assets of the prior firm. This can happen with a merge, acquisition and/or name change.
An occurrence policy form requires that the claim occurrence be during the policy period but has no requirement on when the claim has to be reported to the carrier. Coverage will apply to covered claims that occurred during the covered policy period.
Extended Reporting Period
A period of time allowed for making claims after the expiration of the “claims made” policy form, also known as a “tail.” These are often purchased when a firm closes their doors to ensure there is coverage in force for claims that may arise in the future.
Annual Aggregate Deductible
An annual aggregate deductible is applied annually to the total amount paid in a claim during a policy period, regardless of the number of claims. This limits the number of deductibles you would have to pay in a policy period if multiple claims were to arise.