When customer dissatisfaction becomes a lawsuit, the proper insurance coverage is needed. However, the limitations and types of claim coverage vary. Almost every professional liability insurance policy is a “claims made” policy, which typically provides coverage only for claims first made against the insured and reported to the carrier in writing during the policy period, says Property Casualty 360. Contrarily, “potential claims” coverage provides protection against errors in action that could result in a claim. If the employer fails to notify the insurance carrier promptly, the coverage is immediately void.
In the event an unhappy client files a claim, the employer must immediately forward this to the carrier. However, “potential claims” are an entirely different component. Essentially, the issue lies in what the courts could deem “reasonably foreseen” acts by the employer which should have been avoided and prevented.
The answer to this question is dependent on whether the court takes a “subjective” or an “objective” perspective in evaluating the claim. In other words, Property Casualty 360 asks if the court ascertains your awareness of a potential claim by determining whether you subjectively believed a claim was forthcoming. Or, did the court assess the act and deem it was objectively reasonable or not?
Therefore, the language of the policy should be scrutinized to ensure the proper coverage exists. After all, a business consultant’s reputation is the basis of their business and a large part of how they gain new clients and retain existing ones, states Hiscox.
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