Demystifying Professional Liability Insurance with Mark Rafail

Transcript

Speaker 1: 0:01

This podcast is for educational purposes only, does not constitute legal advice and does not create an attorney-client relationship. If you need legal assistance about a legal problem, contact an attorney.

Speaker 2: 0:13

Thank you for joining us again today on Know your Regulator, the podcast that inspires you to engage. I am your host, simone Murphy, and co-hosting with me today is Director of Legal Services for Bertolino Law Firm, troy Bollier, and we have another great episode lined up for you. We are going to be talking about errors and omissions insurance, most commonly referred to as E&O insurance. We’ve got special guest, mark Raphael, owner and founder of the Raphael Insurance Agency. It’s a really big topic that some license holders may not even know about, so it’s super important can save you a lot of money on your legal fees, so we’ll get into it. I do want to start by leveling the playing field for those who do not know what E&O insurance is. Mark, can you talk to us about Arizona Mission Insurance? What is it and the purpose?

Speaker 1: 1:13

Awesome. Well, first off, thank you, simone and Troy for having me Again. My name is Mark, with the Roffel Insurance Agency. I’ve been a licensed agent for 17 years, but 15 years on my own.

Speaker 1: 1:27

And very commonly, simone and Troy, when you are starting a business or a professional service, a lot of people don’t know the difference between general liability and professional liability and professional liability. So professional liability is insurance on your work, your advice, your recommendations, contractual agreements or disagreements, or if somebody is flat out not happy with your services and they’re pointing the finger and they get a lawyer involved and decide to sue you for any financial repercussions that they may have incurred because they did services with you. Now, a lot of people don’t know that professional liability in, let’s say, in the real estate world or in the insurance and health benefits world, it’s called errors and omissions. It’s still professional liability but it depends on the industry. Let’s say you are a doctor, physician, chiropractor they coin it malpractice insurance. However, it’s still under the professional liability umbrella.

Speaker 1: 2:43

So although it’s different terms errors and omissions, professional liability or malpractice or medical malpractice it’s all under the same world or umbrella of insurance on your work, advice and recommendations and if you just flat out, mess up Right. And if you just flat out, mess up right, and yeah, I don’t think. Now let’s tell most people, when they start in business, they are either required to have general liability to move into their office space and they think general liability generally covers everything which, believe it or not, it doesn’t cover much. It really protects the landlord If somebody gets hurt on premise, if you damage the rented space, so it’s think of it as physical damage to somebody or something. So, but in the professional liability world you can ruin somebody financially but not physically. And then you get sued and you find out that your general liability policy does not cover your work, advice and recommendations. And then that’s when you have to defend yourself.

Speaker 3: 3:53

Unfortunately, yeah, oh, that’s a great clarification, mark. Really appreciate that, because I know a lot of people are not insurance experts and don’t know the fine details and the important differences between different types of insurance products. I was curious if you could tell our listeners a little bit more about the types of industries and the types of professionals that really are going to benefit from looking into errors and omissions insurance, professional liability insurance, like you described it.

Speaker 1: 4:26

Absolutely so. Anybody in the service industry, right, that’s basically our job is to give advice, recommendations. There’s contracts, there’s due dates, so that goes for me and you, insurance professional attorneys, anybody in real estate, really, if you are making a living or there’s an exchange of funds, right, then you definitely want to insure it because somebody can turn around and sue you. Now, believe it or not, there’s industries like engineering, right, there’s industries like engineering. Right, engineering, you draw up some plans, you give it to a builder and they build. What if those drawings are faulty? That’s under professional liability.

Speaker 1: 5:15

So, in my recommendation, any profession that gives advice and recommendations would need errors and omissions insurance. So doctors, lawyers, financial advisors, insurance brokers, health insurance brokers, architects, doctors, anybody giving advice and recommendations, I think would want to cover that advice and recommendations because one disgruntled person or you know, let’s say you’re dealing with somebody that you, just you can’t make happy. No matter what, even if it’s not your fault, at least you got a leg to stand on with. Having a errors and omissions policy or professional liability policy would cover your legal defense cost, even if you’re wrongfully sued, because, again, it takes time to leave your work and hire an attorney to say I didn’t do it and if, for whatever reason, you are partially, you know what happens, troy and Simone.

Speaker 1: 6:23

When there’s a lawsuit, every party gets dragged in and at the very least let’s say it’s a real estate transaction. Real estate broker says buy this investment property, and then that investment property ends up losing money. Guess what, if they want to drag in the lender, the real estate person, the title person, the insurance agent a good attorney is probably just going to throw it all out there and see who’s got insurance to defend themselves and if they decide everybody’s partially liable, then that’s when your liability policy can pay out, partially or fully, depending on how exposed you were fully depending on.

Speaker 3: 7:07

You know how exposed you were. That’s great advice, mark, because I can say from personal experience doing litigation work that that’s exactly right is. You know, lots of people get dragged in and it’s kind of like let’s name everybody and sort it out later let the judge or the jury sort it out. And, unfortunately, lawyers have a common phrase you may have heard. You know you might beat the rap, but you’re not going to beat the ride. And it’s the idea that you know you’re going to get dragged into this and even if you did nothing wrong, you’re going to have to go through it and prove through legal standards that you didn’t do anything wrong. And that takes time and it takes money and it takes a qualified, knowledgeable attorney, all of which, like you said, can be paid for if you’ve got insurance that’s covering that situation.

Speaker 1: 7:51

Yeah, and you know I am a testimony to the Bertolino law firm because that’s how we connect. I was wrongfully accused of misrepresenting information on my own insurance policy and the Texas Department of Insurance called me and I had to defend myself and it was tough. I had to call Troy and he walked me through it and thank God you guys were able to get it dismissed right away. But had I not had that legal counsel, I would have been stuck defending myself. And the other thing is there’s a lot of people out there that end up retiring and become consultants.

Speaker 1: 8:35

Yes, and these consultants get hired by, let’s say, an oil and gas company because they had 20 years of oil and gas experience. Well, that advice and recommendation you better believe Baker Hughes and all these big. They require a lot of these consultants to carry certain amounts of insurance. But sometimes, as a consultant, we think that because we have no employees and we’re just giving advice and recommendations, that we have no exposure. And the reality is companies might be making decisions based on your advice and recommendations and if it costs them financially, then you’re going down. So for those that are giving advice and recommendations or general consultants, I highly encourage them to entertain not only general and professional liability, but there are some other liabilities that may come up Cyber liability if you’re hacked of money and somebody gets hacked or somebody’s personal information gets sacrificed. Cyber liability is what’s going to defend you and cover those scenarios.

Speaker 3: 9:56

Yeah, and that’s a great point that you raised about regulatory actions, which kind of segues into the next section that we wanted to talk to you about. You know, could you talk to us a little bit about how these policies can cover claims that may be filed either in court or just in front of a state regulatory agency, you know, against your, you know your license, where you’re looking at maybe penalties, you know, maybe loss of your license and fees and other charges?

Speaker 1: 10:24

Absolutely so. I believe in knowing that the carriers that you are working with are financially stable and they have a team of legal professionals that they usually outsource or have in-house to defend their insurance right. So some carriers that are in the errors and omissions or professional liability space include Travelers Insurance, cna Insurance, hiscox Insurance, lloydds of london. And if there’s a lawsuit that comes across your desk and you come and give it to me as as your agent, I will say, all right, let’s get the claims number for the the carrier, submit all the information to the carrier and then they will now be the ones engaging with the disgruntled uh party, that is is suing insured.

Speaker 1: 11:21

So the good news is it allows you some breathing room, legal defense costs and even reimbursement of lost wages in some cases if you’re going out and defending yourself and you have to miss work in order to do that.

Speaker 1: 11:39

So, to answer your question, troy your insurance policy, when you have liability limits, defense costs are either within those liability limits or you can have it separate from the liability limits, and what that means is if I have a million dollars in liability and I end up defending at 300,000, but I’m liable for a million, there’s that difference because your defense costs were within the limits. If you have defense costs out of the limits, then they’re separate. So it’s a key thing to know. But I’m here to say the higher your revenues, the higher your liability should be, because you don’t want to have a multi-million dollar business with $1 million limits, because if you’re on the hook above that you’re ruined. Now, if you’re a newer business or your revenues are under a million, having million dollar limits could be just fine. But it’s good to know the difference between legal costs in the policy or outside the limits.

Speaker 2: 12:44

Absolutely. I mean, that’s super important and just a really great insight and takeaway for our viewers. Are there other areas, say like civil litigation, where this type of insurance would assist with that financial burden?

Speaker 1: 13:08

Yes, yeah, your professional liability policy is meant to cover you when you are dragged in for anything representing your work. Right Now, if somebody gets hurt right due to your negligence, that’s general liability. However, there’s many times where maybe your advice is what caused that person to get it. So then now you have a gray area right. So when you have both errors and omissions and general liability, that really alleviates less gray area and then you know if you want to overlap some more.

Speaker 1: 13:40

I just mentioned, you know, cyber liability, if somebody hacks your emails or billing system. And then there’s another coverage out there that a lot of businesses may not be aware of, but it’s called employment practices liability insurance. That is what if you’re sued for wrongfully terminating an employee or a client, if you’re sued for discrimination, so even harassment, so they call it EPLI Employment Practices Liability Insurance. So when you package your insurance with some of these carriers I mentioned, they’ll line item hey on our package. You could package the professional liability or errors and omissions with your general liability, with some cyber liability, with some employment practices liability. Consultants, advisors, business owners need to know these coverages because the last thing I want to do as an insurance agent is say that’s not covered. Go hire your own attorney, because your policy can’t defend you.

Speaker 2: 14:51

Right.

Speaker 3: 14:53

Yeah, no, that’s great advice, mark, and I can speak to that personally. When I worked as a regulator, unfortunately for many years, I saw folks who did get kind of dragged into something and it kind of materialized in more than one setting. You know, you’ve been talking about these different contexts where different insurance might apply and when I worked as a regulator it was not uncommon for me to see somebody dealing with a civil lawsuit about their professional conduct and advice but at the same time have a regulatory complaint in front of their state licensing entity that was dealing with that same allegation and then sometimes even, you know, in serious cases where they’re making ethics accusations, it could even end up in criminal court. But so there are times when you’ve got kind of multiple legal matters in different settings, but they’re all related to the same core facts, like you said, giving professional advice and giving your expert opinion.

Speaker 1: 15:59

Awesome, troy. And something else to consider is sometimes, when your name gets dragged in and it’s not on the right grounds, you have to clean up your name right. And on a lot of these insurance policies, for example, you know crisis management. If you need to hire a third party to say, okay, I’m, you know, somebody put me on the news for something I didn’t do and we need a third party to clean this up, they will walk you through a lot of how to handle it or do some negotiations on your part or do whatever it takes to clear your name can encompass. You know whether somebody sues you for defamation of character or you know vice versa If we need to protect your character.

Speaker 3: 16:58

your insurance policy could have coverage for that. That’s great to know. Yeah, that’s a sometimes that can be really crucial because in some industries your professional name and your reputation is everything to your business and your ability to continue generating revenue and clients so able to do business your insurance policies Simone and Troy are generally based on your revenues.

Speaker 1: 17:36

The higher the revenue, the more exposure you have. And just imagine if a claim happened and you weren’t able to operate out of your business for an extended amount of time, but you still have Susie and Bob and all these people on payroll. You still have maybe lease expenses or a mortgage. Business interruption could reimburse lost revenues during a covered claim. So I always like to bring it up because it’s great if you know you’re defended. But what if you’re out of business for six months? You might not be able to bounce back.

Speaker 2: 18:16

Wow, yeah, such a great point to make, because I think a lot of people are not aware that there are sounds like a bunch of different options to create a safeguard and, like you said, options to create a safeguard and, like you said, sort of a barrier that protects them not only their business, but their name, their license. They’re protected in almost all areas. With that being said, are there some key factors to consider when looking at a policy and selecting a policy?

Speaker 1: 18:45

Yeah, I do think the carrier is it, you know, a carrier that’s financially got a good reputation. That way, if a claim happens, are they able to financially pay? Do they? Are they able to have you know top dollar attorneys to defend you and them right? The other world that I think we get kind of confused in is what is a subcontractor and what is not.

Speaker 1: 19:11

Many times, a professional services or a licensed person hires other team members and if it walks like a duck, it talks like a duck, it’s a duck. It’s same with the employee-employer relationship. If I’m telling you, hey, Troy, simone, I need you working on this during this week, monday through Friday, nine to five, but I’m going to pay you as a 1099 contractor to say I have no employees, I subcontract everything, so I am not liable, well, the reality is, if they mess up and your name is the one on the receipt, guess who’s going down? You. So, for insurance purposes, a true subcontractor is somebody you hire on one-off basis, but they have their own entity. They have their own insurance, but they have their own entity. They have their own insurance and you can tell your insurance company you know what, out of this revenue, I subcontract X to this person and they are either insured or uninsured. No big deal if they’re uninsured, we just want to be forthcoming and honest because the insurance could cover your uninsured subs as long as we tell them. So I think that’s very important because you don’t want to be just the only one defended because you might have representatives out there that are giving you know maybe incorrect information or they made a mistake on something. You know. I use the engineer, the engineering firm, the drawings, you know any scenario. So, especially if you have team members, we want to make sure that your insurance acknowledges whether those are insured or uninsured and that you’re covered.

Speaker 1: 21:03

A true subcontractor. You say pay them, and I just referred them and maybe you got a little, you know, less exposure that way. But I see it a lot guys where, where people are, are subcontracting things and then maybe that subcontractor messes up. So some advice to make sure that everybody on your team is covered and, if they’re a true subcontractor, ask them for proof of insurance with a certificate it’s called certificates of insurance or a COI.

Speaker 1: 21:32

It’s not a full policy but it gives you a snapshot. Do they have professional liability and general liability? And you know what if I hired a builder and do they have workers comp in case that guy falls and you know so. A certificate of insurance is not a full policy, but at least gives you a screenshot. And what most people do if they’re hiring somebody. They’ll say give me a certificate with my company added to your policy as an additional insured. What that means is, if I get dragged in because you messed up, I want to be defended on your policy first and then my policy is secondary if you guys don’t step up.

Speaker 2: 22:17

Wow, I mean that’s awesome, that’s good to know, and I had no idea that that was even an option. Or, first of all, thanks for explaining that and second of all, that is so important for people to have on their top of mind awareness when they are selecting a policy or considering. You know different types of insurance.

Speaker 3: 22:38

Yeah, I was going to say, mark, you’ve given us such great information and there’s a lot of meat underneath the surface. Here I was going to ask you, you know and kind of summarizing things, takeaways for people what are the main things? If you were going to kind of recap and summarize the benefits of E&O, because I know we’ve talked about so much.

Speaker 1: 22:58

Yeah, I would say the benefits are. Would you want to walk into a service industry knowing that they were uninsured industry knowing that they were uninsured? Probably not. So for one, it’s credibility. Two, most people make a living off their license. Troy, you guys know it, simone, they make a living, so it’s definitely worth protecting that income because if monies are being exchanged, anybody could point the finger at any time and it’s certainly not worth jeopardizing what may be providing not only a living for you but possibly many others if you have employees. So yes, I would say I would never go into believe it or not.

Speaker 1: 23:44

Doctors they are required to have malpractice insurance. However, the amount of malpractice insurance is up to them, and I’ve seen surgeons with $100,000 in liability because they got out of med school and that’s what they did. Now they’re doing millions of dollars, millions of dollars, and when that lawsuit happens, there’s been scenarios where doctors have cut the check for that difference because they didn’t maintain reviewing it. So I would say, if you provide all the services you offer without just being transparent, then it’s the insurance agent’s job to make sure all your services are covered. Where the gray area is, guys, is when people are not forthcoming with all the services Like, yeah, I do flooring installation. Then you come to find out you built a house, all right. Well, there might be coverages not included because the insurance company didn’t know the risk. So I would say the biggest benefit is protecting your livelihood and, you know, sleeping good at night, for both the client and for the business owner or licensed representative.

Speaker 2: 24:58

Yeah, that makes sense Absolutely.

Speaker 3: 25:00

No, I completely agree. I think it’s really something that everybody who’s in the business of giving professional advice needs to take a very hard look at. It’s like having an auto insurance policy because you drive a vehicle, or a homeowner’s policy because you have a house. You need to have some kind of professional insurance E&O policy, malpractice, whatever you want to call it and really make sure that it’s covering you both for civil lawsuits but also when you get a complaint from your regulator.

Speaker 2: 25:32

We have stressed so much throughout this video how crucial it is to have you know insurance in your toolbox. If you’re a licensed professional, we really encourage you to evaluate your current coverage and ensure that it’s right for you and if you don’t have any coverage, consult with an insurance professional. Thank you again, Mark, for your time today. We really appreciate you coming on and thank you to our viewers for tuning in, Subscribe and continue to enhance your professional life and, until next time, take care.

Speaker 1: 26:03

Thanks.

Speaker 3: 26:03

Troy. Thanks, Simone.

Speaker 2: 26:05

Thank you.

Speaker 3: 26:06

Thanks, Mark.

Speaker 2: 26:07

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