On the implications of not renewing professional liability and product liability policies
Apr 4, 2020
Lifetime policies? Yes, at least as long as the developer/contractor/planner is responsible.
By: Miri Lebhar, VP, Itzick Simon - the leading construction insurance agency
Contractors and developers operating in the construction industry should ensure that they are insured at all times and continuously with professional liability and product liability policies.
As for planners, foremen and supervisors (being engineers, civil engineers and architects) - they are responsible for continuing to hold a professional liability policy dedicated to their field of activity. Many policyholders do not fully understand the meaning of the above policies, as policies based on "claims made". In practice, there is a widespread misconception that insurance payments can be stopped or not renewed.
For example, when the insured ceases or reduces his activity. Well, let us note right now: failure to renew a professional liability policy or a product liability policy may leave the insured without insurance coverage on the day of the accident , and as a result, face a broken trough. Therefore, we have chosen to emphasize in this short article the importance of constant and comprehensive renewal of the aforementioned insurance policies.
Lifetime policies? Yes, at least as long as the developer/contractor/planner is responsible.
By: Miri Lebhar, VP, Itzick Simon - the leading construction insurance agency
Contractors and developers operating in the construction industry should ensure that they are insured at all times and continuously with professional liability and product liability policies. As for planners, foremen and supervisors (being engineers, civil engineers and architects) - they are responsible for continuing to hold a professional liability policy dedicated to their field of activity.
Many policyholders do not fully understand the meaning of the above policies, as policies based on "claims made". In practice, there is a widespread misconception that insurance payments can be stopped or not renewed. For example, when the insured ceases or reduces his activity.
Well, let us note right now: failure to renew a professional liability policy or a product liability policy may leave the insured without insurance coverage on the day of the accident , and as a result, face a broken trough. Therefore, we have chosen to emphasize in this short article the importance of constant and comprehensive renewal of the aforementioned insurance policies.
Real-life example
Let's start with an example of a real-life case (details have been changed to protect those involved). A veteran architect who headed a prestigious architectural firm for about 50 years retired at a good time upon reaching the age of 75. At the same time as his retirement, he canceled his professional liability policy, which he had paid continuously over the years, and chose not to purchase coverage under RUN-OFF (or the agent did not enlighten him on the issue).
Shortly into retirement, while our architect is enjoying quality time with his grandchildren, a serious and fatal accident occurs on one of the last projects the architect was entrusted with, killing three workers and seriously injuring another. Less than a few months later, a lawsuit is filed against everyone involved in the project. From the executing contractor, through the developer, to the planning architect.
The architect contacts his insurance company to activate his professional liability policy, but after a brief inspection, he is told that the insurance coverage is not valid. " How can this be ?" the architect asks in a trembling voice, "After all, I have paid the policy for all these years, and at the time of the planning I was well insured." "That is true," the insurance company representatives answer him, "but at the time of the incident you did not have a valid policy, and since a professional liability policy is based on the date of filing the claim, you are not entitled to coverage."
What does "date of filing claim" mean?
Professional liability insurance (like product liability insurance) is a claims made type of insurance. That is, "the date the claim is filed." This means that in order for the insurance to be valid, two cumulative conditions must be met:
- The insured had a valid policy at the time of the event , and in the case of planners or engineers, the aforementioned date is the planning date and not necessarily the date of the accident.
- The insured had a valid policy at the time the claim was filed .
Let's start with an example of a real-life case (details have been changed to protect those involved). A veteran architect who headed a prestigious architectural firm for about 50 years retired at a good time upon reaching the age of 75. At the same time as his retirement, he canceled his professional liability policy, which he had paid continuously over the years, and chose not to purchase coverage under RUN-OFF (or the agent did not enlighten him on the issue).
Shortly into retirement, while our architect is enjoying quality time with his grandchildren, a serious and fatal accident occurs on one of the last projects the architect was entrusted with, killing three workers and seriously injuring another. Less than a few months later, a lawsuit is filed against everyone involved in the project. From the executing contractor, through the developer, to the planning architect. The architect contacts his insurance company to activate his professional liability policy, but after a brief inspection, he is told that the insurance coverage is not valid. " How can this be ?" the architect asks in a trembling voice, "After all, I have paid the policy for all these years, and at the time of the planning I was well insured." "That is true," the insurance company representatives answer him, "but at the time of the incident you did not have a valid policy, and since a professional liability policy is based on the date of filing the claim, you are not entitled to coverage."
What does "date of filing claim" mean? Professional liability insurance (like product liability insurance) is a claims made type of insurance. That is, "the date the claim is filed." This means that in order for the insurance to be valid, two cumulative conditions must be met:
The insured had a valid policy at the time of the event , and in the case of planners or engineers, the aforementioned date is the planning date and not necessarily the date of the accident.
The insured had a valid policy at the time the claim was filed .
If any of these conditions are not met, there will be no insurance coverage for the event. Please note that even if the insured had a professional liability policy and/or a product liability policy that was renewed annually for decades, and only a short time before a claim was filed against him for professional negligence and/or for damage caused by a defect in the product (in the case of an entrepreneur or construction contractor) - he decided not to renew the policy, the insurance coverage will not be valid.
Nowadays, lawsuits are filed against everyone involved in a project. This is despite the fact that it is certainly possible that the lawsuit against some of the defendants will be dismissed. The lawsuits are also filed against decent and excellent professionals whose activities have not been blemished, and one of the advantages of purchasing coverage is assistance in financing the legal expenses of defending a lawsuit (expenses that are clearly not negligible).
A lifetime policy? Yes, at least as long as the developer/contractor/planner/service provider is responsible.
The accurate image regarding the renewal of professional liability and product liability policies is a "Catholic wedding." A responsible professional must ensure that he renews the policies that insure him every year. He must be careful to do so even after he ceases his activity, and even upon retirement.
Please note that even after seven years from the time of cessation of activity, it is recommended to consider renewing the policy, in a RUN-OFF format. In the construction industry, there are quite a few liabilities that continue well beyond the "classic" seven-year statute of limitations period (for example, liability due to defects in the skeleton that continues according to regulations for decades after delivery).
Claim for professional liability
Ensuring appropriate insurance amounts
As far as the liability limit is concerned, it is advisable that the policy be purchased with a liability limit of appropriate and high amounts . Claims in the construction industry can be filed for huge amounts. Especially when it comes to a claim concerning severe and serious bodily harm (up to fatal accidents).
In these situations, according to the latest case law and tort law in Israel, the claim will be filed for amounts that quickly climb to millions of shekels . This is due to the recognition of the heads of damage for loss of future earnings, which determine that the injured party is entitled to compensation for all wages lost from the time of the accident until his alleged retirement. To the extent that the case involves the death of a person, the high claim amounts will be raised by the heirs of the deceased, who will demand compensation for his wages during the "lost years."
In conclusion,
If the insurance company or insurance agency urges you to renew your professional liability policy, or the product liability policy you purchased, do not hesitate and do not think twice.
Claims made policies are policies that must be renewed until the end of time, or at least whenever you can be held liable for damages under any law.
If the insurance company or insurance agency urges you to renew your professional liability policy, or the product liability policy you purchased, do not hesitate and do not think twice.
Claims made policies are policies that must be renewed until the end of time, or at least whenever you can be held liable for damages under any law.
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