Mitigation Costs in Professional Liability Policies

 

Professional Liability Insurance in India, more commonly referred to as Errors & Omissions (E&O) insurance in the case of businesses, provides the business with insurance coverage against claims of negligence, error, or omission in the services rendered by the business under insurance. In this policy, one of the features includes mitigation cost coverage.

Mitigation costs are sums of money that an Insured pays to avoid or lessen the possibility of a claim arising. For example, if a business finds an error in its work that may give rise to a potential liability claim, it may incur expenses to correct such error before it generates a claim. These costs will be incurred in trying to reduce the potential damage or liability and, therefore, may be covered under a professional liability insurance policy. However for mitigation cost section claim to trigger there needs to be a claim payable under the policy. Once the claim is determined to be payable under the policy, the mitigation claim, if any,   also shall get triggered.  

Scope of Coverage

Generally, most professional liability policies would cover mitigation costs to varying degrees depending on the insurer and the terms of the policy.

The policy may grant coverage for mitigating acts either to prevent a potential claim from arising or to lessen the severity of an actual existing claim.

Limits of the Policy

Most professional liability policies have a sub-limit for mitigation costs. This means the insurer will pay only up to that sub limit, which may be less than the general policy limit. An important aspect of this sub-limit is that it limits the aggregate amount that might be claimed under the mitigation costs section.

Events that trigger coverage

To cover mitigation costs, the insured often needs to inform the insurer of the error or the potential claim upon becoming aware of it. In this regard, an insurer's prior consent may be necessary for the incurring of such costs.

The policy typically requires the mitigation efforts to be reasonable and necessary to avoid or minimize the risk of a claim.

Exclusions

Some policies may also have exclusions from the mitigation costs coverage for certain areas, such as those resulting from intentional acts or gross negligence by the insured.

Exclusions might also apply to particular businesses or professional services.

Effect on Premium

Extending a professional liability policy to include coverage of mitigation costs impacts the premium. Broad coverage comes usually at a higher premium; increased sub-limits for mitigation costs are generally more expensive.

Review of Policy: Businesses must carefully review their policy to understand the wording of the terms, limits, and exclusions relating to mitigation cost cover.

Risk Management: Proper risk management practices will assist in making the best use of mitigation cost coverage. Early identification of potential errors is part of effective risk management.

Negotiation: There may be times when, at the time of buying or renewing a professional liability policy, there can be some negotiation in the sub-limits or scope of mitigation cost coverage.

Most importantly, businesses & professionals should be sensitized on mitigation cost handling in professional liability policies to help them protect their business and practice from potential claims by efficiently managing the risk associated with it.

We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

 

Disclaimer:

Zen Insurance Brokers is an IRDA registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.