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Looking at Professional Liability Coverage

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Three Burns & Wilcox experts share how E&O differs from other lines and why you should care.

Q. Why does a real estate property manager need E&O?

Retail insurance agents often question whether property managers need professional liability coverage. While the professional exposures faced by real estate agents are fairly well known, those of property managers are less so. Property managers who work for an owner and those who are licensed professionals and manage property they themselves own, should consider purchasing errors and omissions (E&O) coverage.

The property manager’s professional responsibility is to preserve the owner’s asset by overseeing care of the property, keeping units filled and rents coming in. If they should fail at any of those goals, they could be liable. They may be held responsible if the property is not maintained and loses “curb appeal,” if repairs are not made or made improperly and if tenants depart abruptly or destructively. Keeping the property value up and tenants safe fall within the duties, whether a commercial office building or a personal residence.

Choosing tenants who will pay rent on time, not damage their units or common property and behave appropriately is an important part of the job. Additionally, property managers may face charges of discrimination in their screening of tenants or handling tenant complaints if they fail to treat everyone the same—and sometimes even when they do. Something as seemingly innocent as a chance remark to one tenant about another can bring charges of slander.

When licensed property owners manage their own property, they generally are held to a higher legal standard than that of a simple property owner and face many of the same exposures they would have working for someone else, including discrimination and personal injury claims. Of course, the property manager should do the job carefully and fully comply with the ethics of the profession. Ideally, he or she will have a contract that spells out duties, rights and obligations. Sometimes that is not enough to head off legal action. That is where the E&O policy can help. Most property manager E&O policies contain a standard group of professional coverages and many will offer tenant discrimination, personal injury and even employment practices liability for management firms with multiple employees. Another valuable policy feature is defense outside of limits, since legal costs often are the largest portion of the claim.

Rochelle Elliot, Professional Lines Manager, Burns & Wilcox Scottsdale, Ariz. 

Q. Is it true that most companies need pollution coverage?

It is pretty clear that chemical companies and businesses engaged in environmental mitigation should buy pollution insurance, but most businesses have the potential to harm the environment.

Very few companies buy environmental coverage voluntarily. They usually seek it when a government contract requires it, or when they are a subcontractor and the coverage is a condition of getting the job. It also may be a condition for leasing property for businesses that handle certain kinds of chemicals.

Some of the largest pollution claims come from companies that did not have an obvious exposure.

When there is a fire, the substance that burns or the chemical used to extinguish the fire can cause pollution. Over time, a pipe may corrode, creating seepage and polluting a neighbor’s property or creating a potential mold exposure. The substance discharged does not even have to be a traditional pollutant to set off a pollution event, since anything that disrupts the balance of the environment can fall under the definition of pollution. The classic example is the truck that accidentally discharges milk into a pond or stream, changing the water’s PH level and killing the fish.

Mitigating a polluted site is often expensive and generally not the kind of expense a business can absorb.

Most standard general liability policies have a strict pollution/mold exclusion or limitation, so purchasing a separate pollution policy is usually recommended. And even those carriers that provide some form of pollution coverage within general liability almost always exclude mold. In some states like Texas, where mold exposures and claims are high, mold is the common denominator for why people purchase pollution coverage.

Jan Lewis, Senior Broker, Professional Lines, Dallas/Fort Worth, TX

Q. How are professional lines claims different from other property and casualty lines?

Most agents are more comfortable working with property and casualty lines, and professional lines than errors and omissions (E&O). However, professional liability products are evolving faster than most traditional lines.

Professional liability claims stem from the specialized work professionals do in their fields. If an expert is paid for his expertise and fails to perform up to the standard, he can be held responsible for negative outcomes.

For example, an insurance agent is expected to know and recommend appropriate coverage to clients. If the agent fails to offer appropriate coverage for their clients’ professions, or fails to make a client aware of important exclusions and a loss occurs, the agent’s E&O carrier may have to respond to a claim.

Professional liability claims often involve a fiscal loss: an accountant reviews a company’s books for a pending sale, certifies their accuracy and later the client finds missed items which would have affected the sale price. Professional liability claims may involve property damage: A surveyor incorrectly marks the property line. The property owner builds a structure over the line and when his property goes up for sale, the reliance on the faulty survey may negate the sale.

The evaluation of an E&O or professional liability claim can be more subjective than the evaluation of property and casualty claims. Subjectivity stems from quantifying the value of a reputation and other intangibles.

The primary value of E&O coverage is to pay the cost of a proper claim defense regardless of merit to the allegations. The cost of defending a professional lines claim is estimated to be up to 50 percent higher than property or general liability claims.

Professional liability claims are generally written on a claims-made basis. Property and casualty coverages are generally written on an occurrence basis.

Professional liability is a specialty product that requires expertise. It is best to work with brokers, agents and claim handlers who are familiar with the client’s business specialty and professional lines coverage.

Melanie Elias, Director of Claims, Minuteman Adjusters Inc. Farmington Hills, Mich., a subsidiary of Burns & Wilcox.

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