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While many engineers may never be sued for negligence, financial losses from even one such claim can be devastating. In light of the increasingly litigious times, professional liability insurance (PLI) has become a necessity. Because of the consequences that may flow from not having sufficient coverage or from losing it, it is critical that you understand exactly what your policy covers, who is covered, and what duties and responsibilities you and your insurer have.
Under most PLI policies, which also are referred to as "errors and omissions" or "malpractice" insurance, the carrier is obligated to: 1) defend the insured against covered claims;* and 2) indemnify the insured for the amount of any judgment or settlement the insured must pay as a result of errors or omissions arising out of the performance of the insured's professional services (less the insured's deductible, which can exceed $50,000). The carrier's obligation to del end and indemnify is limited to the face amount of the policy.
The insurer's duty to defend is broader than its duty to indemnify. For example, a carrier must defend its insured if the allegations in a complaint or the facts disclosed by the carrier's preliminary investigation reveal that the insurer may have an obligation to indemnify.1' However, the insurer will not be obligated to indemnify if it is determined through further investigation and/or judicial proceedings that the insured acted intentionally rather than negligently, or that some other technical reason exists to deny indemnification.
Insurance carriers are not required to defend all lawsuits or to indemnify all losses. Since most PLI contracts are "claims made" policies, the only lawsuits they are obligated to defend, and the only costs they are required to indemnify, arise out of claims made or reported during the policy period.[diamonds]
Most courts agree that, to qualify as a "claim," some legal right must be asserted against the insured. This requires less than the filing of a lawsuit but more than a mere request for information or an explanation....