July 29, 2014
Recently an association executive asked us a question about general rules, tools or guidelines about insuring an association, arising out of a recent quote where the magnitude of cost to the association for an insurance package had increased substantially.
Truth be known, every association is different. Each has different operations, services, communications and interaction with its membership, the public, the media and government. All of those differences pose different risks to be taken into account in fashioning not only the right policies to match the risks, but the right professional advice to mitigate the risks and still operate effectively. This means that there isn’t any one particular size solution that fits everyone – as everyone is different. The key is working with someone who gets to understand what you and your association does, how it works, in great detail, and then consults with you about your risks and how to best mitigate them.
This is not the space for “cookie-cutter” solutions, or for cutting corners.
I’ll give you one example. For years we bought D&O coverage because that’s what everyone said we needed to have and, they were partially right. Years after becoming an association executive I came to learn about “liability associated with the provision of professional services.”
As a general matter, D&O policies do not provide coverage for liability associated with the provision of professional services. Thus, where a bank officer is liable for acts as a banker rather than an officer of the bank, a D&O policy with a professional liability exclusion would not provide coverage. Similarly, where a doctor is the president of a professional corporation, the D&O policy would only protect him or her against liability from acts as president of the corporation, and would not provide coverage for professional malpractice claims. The line between professional services and acts outside the scope of this exclusion can be a fine one. Courts often draw a distinction between those acts that require special training or are at the heart of the profession and those acts that are administrative in nature. See e.g. Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979 (3d Cir. 1988).
These issues are among the most hotly contested in the courts, with debates raging between the exclusions for professional liability rendering the policies effectively useless to a strict construction where the exclusions stand to the detriment of the policy holder. One example of this debate was published recently about a court case arising in Rhode Island and a law firm sued for alleged false advertising [ http://www.dandodiary.com/2014/04/articles/d-o-insurance/do-policys-professional-services-exclusion-does-not-preclude-law-firms-coverage-for-false-advertising-claim/]
If there is one thing worse the arguing with an insurance company about whether your coverage applies to your actual work, it’s having to litigate the same thing in court.
For years, one of my tasks was answering regulatory compliance questions for my members, as did other members of our staff[s]. As this was a part of our professional services, and as our D&O coverage excluded coverage for issues arising from these acts, what I needed in addition to D&O was errors and omissions coverage or other professional liability coverage beyond D&O.
A long line of brokers should have picked up on this, but did not. Early on I wasn’t sufficiently informed to know what to explore and those whose professional advice I was relying on didn’t take the time to learn about what our association[s] were doing day to day. This is about learning and listening, then acting prudently. It’s not just about cost – it is about carefully measuring risks and then meeting the risks with sound risk management. The time to do a comprehensive review of your risks and how to best mitigate them isn’t after a subpoena has been served, but now.
Born of years of experience, that is what we do here for trade associations – giving them the opportunity to learn from our mistakes.