Is a standard ISO Professional Liability form finally here?

One of the hallmarks of commercial general liability insuranceis that it’s provided by insurers with relatively consistentterms.

Whether insurers use ISO’s CG 00 01 form, or something similar,you can be pretty certain that the potential for coverage is basedon “bodily injury” or “property damage,” that takes place duringthe policy period, and was caused by an “occurrence,” defined as anaccident (you know the rest).

You can also be confident when it comes to a CGL policy that theduty to defend will only attach to a “suit,” defense costs will besupplemental to limits, there will be relatively predictableexclusions, coverage is provided on a primary basis, subject tocertain exceptions, and notice of a claim must be provided as soonas practicable.

Of course there are some exceptions to all of these, and eachCGL policy likely has endorsements that are much less predictablethan the terms and conditions. But, despite all this, I’ll stickwith my first line: One of the hallmarks of commercial generalliability insurance is that it’s provided by insurers withrelatively consistent terms.

Although CGL policies have enjoyed this similarity in terms, thesame can’t be said about professional liability policies. Thesepolicies are not subject to a standard form, like a CG 00 01. As aresult, professional liability policies have always resembled a boxof chocolates. And some of what you get inside can vary widely.Professional liability policies can differ in their all-important“claims made and reporting” terms, as well as key definitions, suchas “claim,” “damages” and “wrongful act.” And exclusions inprofessional liability policies can resemble the largest of allWhitman’s Samplers.

No consistent terms

Because of the consistency in CGL terms, it’s often an apples toapples comparison when using case law as guidance to addresscoverage. However, the lack of consistency in professionalliability terms can make resorting to case law less effective andmore challenging. The need to distinguish policy terms — betweenwhat’s in the cases and what’s before you — is often in play.

But the table has now been set for professional liabilitypolicies to offer the same consistency in terms that CGL policieshave long enjoyed. ISO has filed a Miscellaneous Professional LiabilityPolicy, along with a boatload of endorsements, including some thatare tailored to specific professional services, including lifecoaching, photography, salons, translators and travel agents.

Given the comfort that so many insurers have with using ISO’sCGL form, it’s not unreasonable that there would also bewide-spread take-up by insurers of ISO’s professional liabilityform. If this happens, analyzing case law regarding professionalliability policies would resemble the process that exists for CGLpolicies. All of this is a long way away from happening, as the ISOform would need to achieve wide-spread use, and then time would berequired for case law to develop in bulk. But thanks to ISO’sfiling, this possibility exists.

Some of the provisions in ISO’s Miscellaneous ProfessionalLiability Policy will likely be difficult for insurers to accept.Likewise, insureds and brokers may not be willing to purchase apolicy that contains some of the ISO provisions. Here is a look ata few of the key provisions of ISO’s Miscellaneous ProfessionalLiability Policy:

The claims provisions in the policy could lead to disputesbetween carriers and policyholders. (Photo: Shutterstock)

Reporting

The policy is “claims made and reported.” Thus, the claim mustbe first made during the policy period and reported to the insurerwithin the policy period, as soon as practicable, but in no eventlater than 60 days after the end of the policy period. The extra 60days to report offers an edge to insureds. But the “as soon aspracticable” requirement can benefit insurers, in the event ofdelayed notice that is still within the required term, assuming theprovision is not interpreted to require prejudice. This is where abattle-ground is likely to lie.

Despite this notice of “claim” provision, the policy alsomandates that notice of circumstances, potentially involving awrongful act, that could reasonably be expected to give rise to aclaim, be given to the insurer as soon as practicable. If done, anysubsequent related claim will be deemed to have been made at thetime of the notice of the potential claim.

Establishing “notice of circumstances,” however, can be veryfact-based and often requires getting into the insured’s head, thatis, whether the insured knew that a circumstance could reasonablybe expected to give rise to a claim. By making “notice ofcircumstances” mandatory, and not optional, it seems that there isa high probability of notice disputes, especially because a formal“claim” does not usually come out of the blue, without the insuredhaving had some sense of it. Did that sense trigger the insured’snotice of circumstances obligation? Courts will be kept busy.

Duty to defend

The duty to defend applies to “claims” and not just suits. Thedefinition of “claim” includes a demand for monetary or nonmonetaryrelief, including injunctive relief. Translation: The insurer has aduty to defend “demand letters” (as well as suits seekingnonmonetary relief). Hiring lawyers at the demand-letter stage maybe an obligation that some insurers are just not willing to takeon.

Consent to settle

The insurer will not enter into a settlement without theinsured’s consent. Although this is not uncommon in some types ofprofessional liability policies, especially medical malpractice, itis unusual to see it in a policy that covers all professionals. Ifconsent to settle is not provided, then a hammer clause — with anunusual aspect — kicks in. The insurer is only liable for theamount it could have settled for, defense costs up to the date ofthe insured’s refusal, 50% of defense costs after the date ofrefusal to settle and 50% of damages in excess of the refusedsettlement.

Female lawyer, male lawyer, female judge in courtroom

The policy appears to allow the insured the right to chooseits own counsel. (Photo: Shutterstock)

Wrongful act

The policy’s definition of “wrongful act” is an actual oralleged act, error, misstatement, misleading statement, omission,neglect or breach of duty.

By not limiting wrongful acts to “negligent acts,” the policy ismore likely to apply to intentional conduct. This is especially sobecause the exclusion titled “Fraudulent, Criminal, Malicious,Dishonest or Intentional Acts” does not in fact include“intentional acts” in its text. This exclusion also does not applyto the duty to defend until there has been a final, non-appealablejudgment or adjudication that establishes such conduct.

All in all, based on these provisions, insurers will likely findthemselves defending some bad conduct.

Miscellaneous provisions

The ISO form also includes the following miscellaneousprovisions, which could prove problematic.

> Choice of counsel. The policy givesthe insured the right to select counsel. (I believe that an insurerwould have a difficult time enforcing this provision, in a state inwhich case law would afford the insured the right to independentcounsel.)

> Defense costs. The limit of liabilityis reduced by defense costs.

> Coverage enhancements. The policyincludes sub-limits for defense of disciplinary and licensingproceedings and subpoena assistance.

> Punitive Damages. The policy’sdefinition of “damages” excludes amounts that are uninsurable underapplicable law.

> Exclusions. Some of the Policy’sexclusions are: abuse or molestation; breach of contract; bodilyinjury (including emotional injury), property damage and the CGLpersonal injury offenses; insured versus insured; intellectualproperty; and disclosure of confidential information (databreach).

> Other insurance. The policy iswritten on an excess basis.

Slow adoption?

Given ISO’s strong reputation, my money is on the organization’sProfessional Liability form to achieve wide-spread use. But becauseit’s a significant decision for insurers, it will likely take timefor this to happen. It is inherent in any terms and conditions formthat some provisions will benefit insurers more than insureds andvice versa. It would not be surprising to see some insurers adoptthe ISO form and then use endorsements, both to limit theirexposure and, for competitive reasons, expand it.

Analyzing case law that addresses professional liabilitypolicies has always been challenging because of the apples tooranges situation created by the lack of consistency in policyterms. I applaud ISO for taking the first step in addressing thissituation.

Randy J. Maniloff is an attorney at White and Williams, LLPin Philadelphia, where he represents insurers in coverage disputesunder a host of policies. He is the co-author of General Liability Insurance Coverage – Key Issues in Every State(3rd edition, National Underwriter) and the publisher ofthe newsletter and website www.CoverageOpinions.info

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