Author: Chris Boggs

Effective June 1, 2017, Insurance Services Office (ISO) introduced the new Miscellaneous Professional Liability Policy (MI 00 01) along with a multitude of endorsements. This is the first in a series of insurance programs designed to address the professional liability needs of various risk types. These new forms are housed in Division Sixteen – Professional Liability – Other Than Medical of the ISO Commercial Lines Manual.

This first Miscellaneous Professional Liability filing was developed to provide professional liability coverage for various types of operations including:

•     Advertising Services
•     Answering Services/Call Center
•     Appraisal Services (Non-real Estate)
•     Career Counseling
•     Concierge Services
•     Corporate Trainer
•     Court Reporting
•     Document Preparation Services
•     Event Planners
•     Interior Designers (Non-structural)
•     Life Coaching Services
•     Notary Services
•     Paging Services
•     Photography Services
•     Printing Services
•     Private Investigator/Investigative Services
•     Process Servers
•     Resume Services/Consulting
•     Salon Services
•     Seminar Conductors
•     Staffing Agency
•     Tax Preparers
•     Tour Operators
•     Translating/Interpreting Services (Non-medical)
•     Translating/Interpreting Services (Medical)
•     Travel Agents
•     Tutoring Services
•     Not Otherwise Classified (NOC)
  

When Not Otherwise Classified (NOC) is used, the MI 10 01 and the MI 10 03 endorsements allow the insured to specifically list one or more professional services intended to be covered. Services eligible for under NOC seem to be quite broad with a few specifically listed ineligible operations which include:

Some carriers may have their own lists of ineligible operations in addition to these business classes.

The Base Coverage Form

Coverage is provided on a claims-made and reported basis, meaning that the claim must be made against the insured and reported to the insurer during the policy period or extended reporting period. The base policy is divided into 11 sections.

Section I extends coverage on a "pay on behalf" basis, in excess of any retention, when the insured is charged with a "wrongful act" occurring after the retroactive date. A "wrongful act" is defined to mean any actual or alleged act, error, misstatement, misleading statement, omission, neglect, breach of duty committed, attempted, or allegedly committed or attempted solely in the performance of or the failure to perform "professional services." The professional service covered by the policy is the service included in the policy's declarations.

Section II addresses the Limit of Liability limiting the total amount of coverage for the policy period to the aggregate limit listed in the declarations. Individual claims are subject to the Each Claim Limit, also listed in the declarations. In the unendorsed form defense cost is within the coverage limits. Two defense limits endorsements are also available:

• Limit of Liability Amended – Additional Defense Costs Limits (MI 03 03): Allows for a specified amount of additional defense cost coverage if the aggregate limit has been exhausted. Until the aggregate is exhausted, defense is still within the limits; or
• Limit of Liability Amended – Defense Costs Outside Limit of Liability (MI 03 04): As the name suggests, defense costs do not reduce the available limit when this endorsement is attached.

Section III applies to Defense and Settlement. The policy states that the insurer has the right and duty to defend and as part of this right and duty can select defense counsel. However, the carrier's right to select defense counsel can be altered by endorsement MI 04 01. This endorsement allows the insured to approve or disapprove the choice of counsel. When the MI 04 01 is attached, the MI 07 05 endorsement is attached placing specific conditions on the insured's choice of counsel. The insurance carrier's duty to defend ends when the limit of insurance has been exhausted.

The Settlement provision gives the insurance carrier the right to negotiate and settle a claim, but only with the consent of the insured. The Consent to Settle provision (often called the "hammer clause) states that if the insured does not settle, they become a 50 percent "coinsurer" on all amounts above the agreed to settlement amount and defense costs incurred after the date the settlement was agreed to by the injured party.

Essentially, if the insured refuses to settle, 50 percent of any damages awarded in addition to the agreed to settlement amount are the responsibility of the insured. Further, the insured must pay 50 percent of the defense costs incurred after the proposed settlement date. Consider the following chart:

The Consent to Settle "coinsurance" percentage can be altered (increased) by endorsement (MI 04 02). In the above example, if the coinsurance percentage is increased to 70 percent, the insured's out-of-pocket costs drop to $42,000 from the $100,000 at 50 percent coinsurance.

Section IV details the retention, stating that only amounts in excess of the retention are paid by the carrier. Retention amounts are basically the first "layer" of protection and are borne solely by the insured. Defense costs are subject to the retention only when defense is within the limits (as it is in the unendorsed form). If the MI 03 04 is attached, defense costs are not subject to the retention.  The basic retention is $2,500, but can be lowered to $250 or increased to $1 million.

Section V, entitled "Related Claims," states that all claims arising out of the same wrongful act or combination of interrelated wrongful acts are considered one claim and are thus subject to one retention (the good part) and one claim limit (the restrictive part). An interrelated wrongful act is defined to mean "all causally connected 'wrongful acts' arising out of the same or substantially the same facts, circumstances or allegations which are the subject of or the basis for any 'claim.'"

Section VI details Coverage Enhancements. This provision includes: 1) Separate limits for the defense of Disciplinary and Licensing Proceedings and Subpoena Assistance; and 2) Up to $500 per day for loss of earnings for each insured person with an aggregate limit of $10,000. These payments do not reduce the Aggregate Limit of Liability and are not subject to a retention.

Section VII, entitled Coverage Extension, can be seen as a vicarious Who Is An Insured section. The form states, "Coverage shall be extended to 'claims' for 'wrongful acts' of an 'insured person' made against:

1. The lawful spouse or domestic partner of such "insured person" solely by reason of such spouse or domestic partner's status as a spouse or domestic partner, or such spouse or domestic partner's ownership interest in property which the claimant seeks as recovery for an actual or alleged "wrongful act" of such "insured person"
2. The estate, heirs, legal representatives or assigns of such "insured person" if they are deceased, or the legal representatives or assigns of such "insured person" if they are legally incompetent, insolvent or bankrupt; or
3. A trust of such "insured person" and any legally approved trustees of such trust."

But note, coverage is not extended for those listed individual acts, only for their vicarious liability for the actions of the insured.

To complete the policy picture, Section VIII lists the 22 policy's exclusions; the policy's Conditions are found in Section IX; and Extended Reporting Periods and the Run-Off Coverage Period are in Section X. The policy's final section, Section XI, defines specific terms.

A unique provision is the Run-Off Coverage Period in Section X. The insured has the option to purchase up to six years of "run-off" coverage in the event of a merger, consolidation or acquisition of the named insured or cessation of a subsidiary.

Loss Costs, Revenue Bands and Forms

Loss costs are based on per $1,000 of revenue and drops as revenues increase. The revenue bands are:

• $0 - $250,000
• $250,001 - $500,000
• $500,001 - $1,000,000
• $1,000,001 - $3,000,000
• $3,000,001 - $5,000,000
  
• $5,000,001 - $10,000,000
• $10,000,001- $15,000,000
• $15,000,001 - $25,000,000
• $25,000,001 - $50,000,000
• $50,000,001 - $100,000,000
• >$100,000,000

Premiums are developed by charging the rate of each band until the ultimate premium is reached. As an example, consider the method for developing the premium for an operation with $6,500,000 in revenues. For this assumption, loss costs are fabricated and Risk Hazard Groups are ignored (there are five risk hazard groups ranging from "Very Low Risk" to "Very High Risk"):

Remember, these numbers are completed made up solely for the example; also, other key rating factors are not considered (such as hazard group, increased limits, deductibles, etc.).

In total, ISO introduced 82 policy forms and endorsements as part of this new filing. Following is the complete list of all the forms and endorsements:

Last Updated:  June 23, 2017

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