Underreporting of a borderline case led to invalidation of professional liability insurance
Jan 31, 2024
By: Miri Levaher
A large inspection company that supervises large-scale projects in Israel had for years held a professional liability policy with one of the leading insurance companies on the market. At a certain point, following a price increase, the company asked an agent to look for another alternative. The agent recommended that it insure its activities with a competing company where the premium was significantly lower.
About two years after the move, a lawsuit was filed against the supervisory company following an event that occurred about 10 years earlier. That is, during the period when it was insured with the previous insurance company.
The new insurance company, which was supposed to step into the shoes of its predecessor and provide insurance coverage, claimed that the case was not included in the new policy because "the insured had prior knowledge" of the event, which was not subject to the statute of limitations.
The inspection company unfortunately discovered that Murphy's Law is working overtime again in the construction industry. It found itself dealing with a claim filed without insurance for approximately 2.5 million shekels. Far beyond the premium "saved" by switching between liability insurance policies.
By: Miri Levaher
A large inspection company that supervises large-scale projects in Israel had for years held a professional liability policy with one of the leading insurance companies on the market. At a certain point, following a price increase, the company asked an agent to look for another alternative. The agent recommended that it insure its activities with a competing company where the premium was significantly lower.
About two years after the move, a lawsuit was filed against the supervisory company following an event that occurred about 10 years earlier. That is, during the period when it was insured with the previous insurance company.
The new insurance company, which was supposed to step into the shoes of its predecessor and provide insurance coverage, claimed that the case was not included in the new policy because "the insured had prior knowledge" of the event, which was not subject to the statute of limitations.
The inspection company unfortunately discovered that Murphy's Law is working overtime again in the construction industry. It found itself dealing with a claim filed without insurance for approximately 2.5 million shekels. Far beyond the premium "saved" by switching between liability insurance policies.
How could the failure have been prevented?
The inspection company erred in not reporting the incident that occurred at one of the construction sites under its previous responsibility. This is despite the fact that it was probably a borderline incident in terms of its responsibility (in light of privacy concerns, we will not elaborate on it in this text). If the insured had been careful to report in full, and the new insurance company had included it in the policy, there would have been no option to refuse to provide coverage.
The inspection company erred in not reporting the incident that occurred at one of the construction sites under its previous responsibility. This is despite the fact that it was probably a borderline incident in terms of its responsibility (in light of privacy concerns, we will not elaborate on it in this text). If the insured had been careful to report in full, and the new insurance company had included it in the policy, there would have been no option to refuse to provide coverage.
Reminding you
The basis of coverage in a professional liability insurance policy is the "date of filing the claim" or in professional language Claims Made. Coverage in an insurance case depends on two cumulative conditions: the existence of insurance at the time of the event + the existence of insurance at the time of filing the claim . When a company makes a transition between policies, it must ensure that the insurance continuity is maintained. This includes comprehensive reporting and full transparency about each and every case in the past that may result in the filing of a claim. Including cases whose grounds are extremely weak.
Remember that planners and engineers are almost automatically included in any claim for an incident at a construction site. Only a proper professional liability policy will provide a solution on the day of the accident.
Are you sure you acted without fault? Know that the very management of the lawsuit involves high expenses in the absence of insurance, even if at the end of the day it turns out that you are not responsible for the case. The legal expenses that will be involved in presenting a defense case, as well as the hassle, emotional distress and loss of working days, constitute financial and image damage in themselves. In the absence of valid professional liability insurance, these expenses will be incurred from the company's own pocket. Even if the lawsuit is dismissed at the end of the day, the courts do not always award expenses to the defendant at their true rate.
The basis of coverage in a professional liability insurance policy is the "date of filing the claim" or in professional language Claims Made. Coverage in an insurance case depends on two cumulative conditions: the existence of insurance at the time of the event + the existence of insurance at the time of filing the claim . When a company makes a transition between policies, it must ensure that the insurance continuity is maintained. This includes comprehensive reporting and full transparency about each and every case in the past that may result in the filing of a claim. Including cases whose grounds are extremely weak.
Remember that planners and engineers are almost automatically included in any claim for an incident at a construction site. Only a proper professional liability policy will provide a solution on the day of the accident.
Are you sure you acted without fault? Know that the very management of the lawsuit involves high expenses in the absence of insurance, even if at the end of the day it turns out that you are not responsible for the case. The legal expenses that will be involved in presenting a defense case, as well as the hassle, emotional distress and loss of working days, constitute financial and image damage in themselves. In the absence of valid professional liability insurance, these expenses will be incurred from the company's own pocket. Even if the lawsuit is dismissed at the end of the day, the courts do not always award expenses to the defendant at their true rate.
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