​Liability Insurance: When to File a Claim and Why: Examples of when clients sue

Professional liability insurance covers your business against claims of negligence brought by your clients. Typically, these claims arise because of mistakes or a failure to perform your duties as promised (either actual or perceived).

Here are examples of lawsuits that would trigger a professional liability claim:

• A real estate agent is selling a home that’s been on their books for a long time. They represent the buyer and the seller. They don’t disclose known mold issues to the buyer. The buyer later sues for violations of good faith and fair dealing.
• A financial adviser invests their client’s money in a recent public offering in a company they have a personal stake in. They don’t tell the client about their connection. The client finds out about the conflict of interest and sues.
• A therapist divulges confidential information to a client’s spouse without the client’s consent. The client finds out when their spouse brings it up in an argument. The client sues for breach of confidentiality.
• A doctor forgets a surgical instrument inside a patient during surgery, which leads to further complications and additional surgery. The patient sues for malpractice.
• A contractor promises to complete a homeowner’s renovation project using specific materials. Instead, they use substandard materials that cause damage. The homeowner hires another contractor to correct the work. They sue the original contractor for negligence, loss of use and corrective repairs.

Clients must meet a certain threshold to prove that services or work products were negligent. Even if your case isn’t as straightforward as the examples above, you’ll still need to defend yourself. That takes time, money and expertise.
When to file a claim on your professional liability insurance policy
Contact your insurance agent if you think a client might submit a complaint against you.
Professional liability policies are usually written on a claims-made basis. This means you’re covered for claims made against you while your policy is active. The date of the event doesn’t matter.
You can’t predict if an unhappy customer will actually sue you. But you can inform your agent if the risk of a lawsuit is brewing. What triggers a professional liability policy can vary based on how it’s written.
Triggers to watch out for
Here are a few examples of common triggers that signal when to call your agent about a possible claim:

• A client claims the service they received was inadequate or incomplete.
• A client alleges you were careless and didn’t fulfill your contractual obligations.
• You made an error or omission that led to financial loss or damage to your client.
• A client alleges you gave them bad advice.
• A client threatens to sue you.
• You receive notice that a client is suing you, and proceedings are pending.
• A client says they’re unhappy or dissatisfied with your work or service.
• You or your client discovers an error in work you’ve already delivered.
• There is a breach of contract, whether intentional or unintentional.
• A client claims they suffered damage or harm due to your services.
• A client refuses to pay for the service or demands a refund, claiming poor service or negligence on your part.

This isn’t an exhaustive list, but these are the more common situations that could signal trouble.
Who to call about a potential claim
Contact your agent with the details. They’ll help you determine your next steps.
It’s important to know that your lawyer may not be on your insurance company’s approved legal team for professional liability claims. It's nice to have counsel appointed if you don’t have a regular lawyer, but it may be disappointing if you expect to be able to choose your attorney.
Your independent agent can explain the claims process and what to expect from your insurance company.
An overview of the claims process
The purpose of professional liability insurance is to help you mount a legal defense when a claim moves forward. Here are some milestones involved in a professional liability policy:
Pay your deductible if you don’t have “first-dollar defense” coverage. Your policy might require you to pay a predetermined amount before the insurance company will pay the rest. This amount is your deductible. However, you won’t have to pay anything if your policy includes first-dollar defense coverage. Your defense costs are paid from the first dollar.
Assign your legal representation. Most professional liability insurance policies let your insurance company decide on the legal team, strategy, and whether to settle or contest a claim. Most insurance companies have teams of preapproved defense attorneys who specialize in professional liability. These attorneys are familiar with the type of lawsuit you’re encountering and will typically be assigned to your case.
Provide evidence. Your legal team will ask you for supporting documentation, such as signed contracts, correspondences, notes, voicemails, texts, social media posts, emails and other evidence to support your claim. They’ll review your client’s evidence, too. This might come in the form of “discovery,” where each party to the case can request evidence from the other.
Negotiate a settlement. If the claim against you is valid, your insurer may attempt to negotiate a settlement within your insurance policy’s limits. The legal team negotiates these settlements.
Pay damages. If your claim goes to trial and you lose, you might have to pay damages. Professional liability insurance will pay the judgment up to your policy limits. Any amount exceeding your policy limits will be your responsibility. For reference, the average jury award for a business negligence claim is over $3 million, according to the Insurance Information Institute.
Ask your agent to clarify whether your legal fees are taken from the policy limits or if they’re outside the limits. This will affect how much coverage you need. Make your policy limits high enough to pay for your legal defense team and any judgments or settlements. 
Review your coverage
Remember, each professional liability insurance policy is different. Call your agent if you have questions about how much coverage you have and whether it’s enough to handle a significant lawsuit. They’ll run the numbers and help you decide on a suitable policy.
Joseph S. Regenski, III
[email protected]
F. Frederick Breuninger & Son Insurance, Inc.
1140 W Lincoln Hwy, Coatesville, PA 19320  www.binsured.com