Errors and Omissions Insurance
CJ
minted patent agent. Having spent many years working as an independent
contractor, and seeing no reason to change now, I am hoping to continue
in that mode of employment as I gain experience as a patent agent. My
goal will be to subcontract through law firms.
However, unlike computer consulting, where I at least never worried
about getting sued, professional liability becomes a real issue in the
world of patent work. I recently contacted the IEEE, of which I am a
member, and asked about their insurance. I received the following
reply:
"The attached application is for a miscellaneous professional
liability policy. It is not for an attorney, engineer or other
specific profession." So, right off the bat, I'm not sure that
does me any good. Then, I look at the application itself, and it says:
"Application For Professional Liability Errors & Omissions
Insurance" -- Okay, I think.
"If Coverage Is Issued, It Will Be On A Claims-Made Basis" -- I
have no idea what that means.
"Notice: This Insurance Coverage Provides That The Limit Of Liability
Available To Pay Judgments Or Settlements Shall Be Reduced By Amounts
Incurred For Legal Defense. Further Note That Amounts Incurred For
Legal Defense Shall Be Applied Against The Deductible Amount." -- In
other words, I think, the cost of my defense can completely eat up the
insurance, so I'm still left holding the bag.
Well, bottom line, I realize I have no idea what I'm signing up for
here.
Would anyone be generous enough to volunteer a kind of Top Ten Things
Everyone Should Know About Errors and Omissions Insurance? Along the
way, you might include mention of how much people typically sign up for
(half a million? a million? two million?)? And, how much should I
typically expect this to cost? ($500? $2000? $10,000!?) A list of
recommended brokers would be immensely helpful.
Finally, I'm curious -- are there any independent patent agents who
practice without this kind of insurance?
Thanks in advance for all replies!
CJ
cbreitel
> I have recently passed the USPTO's patent bar exam, and am a newly
?
> Would anyone be generous enough to volunteer a kind of Top Ten Things
> Everyone Should Know About Errors and Omissions Insurance? Along the
> way, you might include mention of how much people typically sign up for
> (half a million? a million? two million?)? And, how much should I
> typically expect this to cost? ($500? $2000? $10,000!?) A list of
> recommended brokers would be immensely helpful.
1. I doubt you will get sufficient answers from posting to a usenet
newsgroup. What you should do is consult with more than one broker of
professional liability insurance. There may be coverage available that
is specific to patent agents.
2. You've raised questions about the cost of defense being deducted
from your policy limits, etc. These numbers are all things you can
adjust by paying higher or lower premiums.
3. The most important aspect of your policy is the insuring clause, but
you haven't quoted that for us. What does your E&O policy provide
coverage for? If you think there are risks you are facing as a patent
agent that aren't covered by the policy, you need to be aggressive in
addresing this with your broker.
4. What personal assets will even be at stake in your business? Why
can't you do business as a corporation so your personal assets are
protected by a corporate shield?
Mike Jacobs
> I recently contacted the IEEE, of which I am a
> member, and asked about their insurance. I received the following
> reply:
>
> "The attached application is for a miscellaneous professional
> liability policy. It is not for an attorney, engineer or other
> specific profession." So, right off the bat, I'm not sure that
> does me any good.
I'm not sure either. Isn't there a live person on the other end you
can ask whether it covers patent agents?
> Then, I look at the application itself, and it says:
>
> "Application For Professional Liability Errors & Omissions
> Insurance" -- Okay, I think.
Yes, that's what it's usually called. It covers you for negligent
mistakes ("errors or omissions") you may make in the course of
representing someone in a professional matter, as well as the cost of
defending against such claims.
> "If Coverage Is Issued, It Will Be On A Claims-Made Basis" -- I
> have no idea what that means.
Again, ask your broker what _they_ say it means. The specific policy
language (once it is issued) should define this; it may be a good idea
to ask to look at an exemplar (sample) policy form before you sign up.
But in general, that means that the policy covers matters where the
"claim" (the other party's contention that you negligently caused him
damage) is "made" (i.e. brought to the attention of the insurer) during
the period of time that the policy is in effect, even if the event they
complain about occurred years before. Most professional liability
policies are like this, as opposed to "occurrence"-type policies which
provide coverage for a negligent event that caused injury during the
policy period regardless of when the claim was brought to the attention
of you or the insurer (as long as it is within the statute of
limitations, and as long as you reported it to the insurer promptly
after _you_ learned of the claim, etc.). Most auto- and
homeowner-liability policies are "occurrence" policies.
> "Notice: This Insurance Coverage Provides That The Limit Of Liability
> Available To Pay Judgments Or Settlements Shall Be Reduced By Amounts
> Incurred For Legal Defense. Further Note That Amounts Incurred For
> Legal Defense Shall Be Applied Against The Deductible Amount." -- In
> other words, I think, the cost of my defense can completely eat up the
> insurance, so I'm still left holding the bag.
Yes, that's what it says. If you want coverage that includes the cost
of defense _in_addition_to_ the amount the insurer will pay to
indemnify you (i.e. what it will pay to the claimant to settle the
case) then you need to ask for a "defense outside" policy (i.e., the
cost of "defense" is "outside" the stated limits of coverage rather
than "inside" the limits where it could eat them all up). And under
the proposed policy, you will basically have to pay your deductible
amount up front whenever a claim is made regardless of whether the
claimant ultimately wins anything or not, since the cost of defense
will kick in immediately.
> Well, bottom line, I realize I have no idea what I'm signing up for
> here.
You really should discuss it in some detail with a live representative
of your insuring group (IEEE) and maybe get some competitive quotes
from other insurers as well as ask around among other members of your
profession. I realize that is what you are trying to do here but
there may be significant differences from what a _legal_ malpractice
policy covers and what your needs are. Doesn't IEEE have a listserv
or something where you can discuss these issues with other members?
> Would anyone be generous enough to volunteer a kind of Top Ten Things
> Everyone Should Know About Errors and Omissions Insurance?
I'm afraid that's beyond my creative efforts right now but maybe it's
not necessary to re-invent the wheel. I'd be surprised if one or more
of the major insurers haven't come up with such a FAQ on their website
which you could find by Googling them or just logging on to the site of
a major commercial-lines insurer. (_Not_ the big personal-lines
companies you may be familiar with thru auto and home policies). E.g.
Aetna, Travelers, CIGNA, Hartford, Kemper, One Beacon ...
> Along the
> way, you might include mention of how much people typically sign up for
> (half a million? a million? two million?)?
Depends on the size of the risk you will undertake for your clients and
the amount of your own assets that you would put at risk for an excess
claim. Since patents may be worth multimillions I would not even
hesitate a guess as to what other patent agents consider a reasonable
amount of coverage.
One tip, though, is to look for a "sweet spot" where the amount of
coverage-per-dollar-of-premium is optimized in your favor. That is
probably not the minimum amount they will write you up for, nor the
maximum amount, but somewhere in between. You may also look into the
possibility of an umbrella policy to cover your personal assets for
claims in excess of the primary amount; those are typically far cheaper
per dollar of coverage because (a) they only kick in on very large
claims, so the overall risk of exposure they are taking on is less, and
(2) they don't have to pay for defense costs.
> And, how much should I
> typically expect this to cost? ($500? $2000? $10,000!?) A list of
> recommended brokers would be immensely helpful.
Ask your fellow IEEE members for recommendations, or just consult a
couple of independent insurance brokers in your local area. Most of
them have a variety of companies to pick from to provide you the kind
of coverage you need and will work hard to get and retain your
business.
> Finally, I'm curious -- are there any independent patent agents who
> practice without this kind of insurance?
There probably are, just like there are doctors and lawyers who
practice without insurance, but IMO it's not a very good idea, both
because (a) it leaves your personal assets completely at risk and
leaves you at sea as far as hiring a lawyer and defending claims if any
are made, and (b) it leaves your clients' interests unprotected in case
you screw up, which is not very comforting to _them_ who you are, after
all, supposed to be looking out for.
> Thanks in advance for all replies!
>
> CJ
Good luck,
--
This posting is for discussion purposes, not professional advice.
Anything you post on this Newsgroup is public information.
I am not your lawyer, and you are not my client in any specific legal
matter.
For confidential professional advice, consult your own lawyer in a
private communication.
Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
10440 Little Patuxent Pkwy #300
Columbia, MD 21044
(tel) 410-740-5685 (fax) 410-740-4300
Stan Brown
<charles...@yahoo.com>:
> 4. What personal assets will even be at stake in your business? Why
> can't you do business as a corporation so your personal assets are
> protected by a corporate shield?
I asked my lawyer that very question when I started my business in
1984. Her answer was that when someone sues over professional
services, they'll sue the person individually and the corporation is
no shield for a sole practitioner.
--
If you e-mail me from a fake address, your fingers will drop off.
I am not a lawyer; this is not legal advice. When you read anything
legal on the net, always verify it on your own, in light of your
particular circumstances. You may also need to consult a lawyer.
Stan Brown, Oak Road Systems, Tompkins County, New York, USA
http://OakRoadSystems.com
prab...@shamrocksgf.com
> CJ wrote:
>> "If Coverage Is Issued, It Will Be On A Claims-Made Basis" -- I
>> have no idea what that means.
> Again, ask your broker what _they_ say it means. The specific policy
> language (once it is issued) should define this; it may be a good idea
> to ask to look at an exemplar (sample) policy form before you sign up.
> But in general, that means that the policy covers matters where the
> "claim" (the other party's contention that you negligently caused him
> damage) is "made" (i.e. brought to the attention of the insurer) during
> the period of time that the policy is in effect, even if the event they
> complain about occurred years before. Most professional liability
> policies are like this, as opposed to "occurrence"-type policies which
> provide coverage for a negligent event that caused injury during the
> policy period regardless of when the claim was brought to the attention
> of you or the insurer (as long as it is within the statute of
> limitations, and as long as you reported it to the insurer promptly
> after _you_ learned of the claim, etc.). Most auto- and
> homeowner-liability policies are "occurrence" policies.
Seems like you could pull a fast one on the insurance company with a
"claims-made" policy if it's like you described.
Example: I have a company that's uninsured and I make a major mistake and
the client comes to me telling me he's going to sue for $20,000,000. I then
tell him "Ok, I'll mail you my insurance info" and I then race down to the
broker's office and take out a policy. I then give him the info and he files
the claim with them. It's then '"made" (i.e. brought to the attention of the
insurer) during the period of time that the policy is in effect' and they'd
have to pay off on it (assuming they/I lost the lawsuit.) So what's to
prevent such a thing as that from happening?
Not trying to say you're wrong but apparently I'm missing something here.
--
Mike
cbreitel
Stan Brown wrote:
> Wed, 26 Oct 2005 13:19:52 -0400 from cbreitel
> <charles...@yahoo.com>:
> > 4. What personal assets will even be at stake in your business? Why
> > can't you do business as a corporation so your personal assets are
> > protected by a corporate shield?
>
> I asked my lawyer that very question when I started my business in
> 1984. Her answer was that when someone sues over professional
> services, they'll sue the person individually and the corporation is
> no shield for a sole practitioner.
I am a lawyer who litigates professional liability insurance issues. In
the laws of most states it is not easy to pierce the corporate veil and
disregard the corporate entity, if the sole practitioner has done a
competent job of maintaining a sufficient distinction between himself
and the entity. A lawyer can sue an individual personally if he or she
likes, but the individual will be dismissed from the lawsuit if the
simple steps required to keep the individual distinct from the entity
have been followed.
Mike Jacobs
> Mike Jacobs <mjaco...@gmail.com> wrote:
> > CJ wrote:
> >> "If Coverage Is Issued, It Will Be On A Claims-Made Basis" -- I
> >> have no idea what that means.
> > in general, that means that the policy covers matters where the
> > "claim" (the other party's contention that you negligently caused him
> > damage) is "made" (i.e. brought to the attention of the insurer) during
> > the period of time that the policy is in effect, even if the event they
> > complain about occurred years before.
> Seems like you could pull a fast one on the insurance company with a
> "claims-made" policy if it's like you described.
>
> Example: I have a company that's uninsured and I make a major mistake and
> the client comes to me telling me he's going to sue for $20,000,000. I then
> tell him "Ok, I'll mail you my insurance info" and I then race down to the
> broker's office and take out a policy. I then give him the info and he files
> the claim with them. It's then '"made" (i.e. brought to the attention of the
> insurer) during the period of time that the policy is in effect' and they'd
> have to pay off on it (assuming they/I lost the lawsuit.) So what's to
> prevent such a thing as that from happening?
Why that scam wouldn't work is that when you go take out the
(chronologically) first claims-made policy for the business in
question, the insurer asks you all kinds of questions on the
application regarding the scope of the risk they are undertaking,
including whether you, the applicant, have any knowledge of any facts
that might give rise to POTENTIAL claims. If you do know of and fail
to disclose the existence of such facts, they will disclaim coverage
for any claim arising from those facts. I.e., once you screw up and
know you screwed up, you have to tell them about it when you apply for
the policy.
OTOH if you have no idea that you screwed up, then take out a policy,
and someone brings a claim later arising from facts that occurred
before the policy period began, that is exactly what "claims-made"
coverage is intended to cover.
Also, if you are talking about _renewing_ a policy at the end of its
natural term, and/or taking out a new policy with a different company
(when you have been continuously covered by claims-made policies from
the beginning of your professional career) they typically include what
is called "tail" coverage, which includes claims-made coverage for
claims whose operative facts arose during the previously-covered
periods of time. The premium for claims-mde coverage will therefore
typically increase with the length of time you need coverage for,
regardless of whether any claims have been made against you yet or not,
because there's a lot more stuff that _could_ have happened and will
later come to light even if you don't know about it yet.
Phoebe Roberts, EA
> Example: I have a company that's uninsured and I make a major mistake and
> the client comes to me telling me he's going to sue for $20,000,000. I then
> tell him "Ok, I'll mail you my insurance info" and I then race down to the
> broker's office and take out a policy. I then give him the info and he files
> the claim with them. It's then '"made" (i.e. brought to the attention of the
> insurer) during the period of time that the policy is in effect' and they'd
> have to pay off on it (assuming they/I lost the lawsuit.) So what's to
> prevent such a thing as that from happening?
The questions on the application to the effect of "Have any claims,
suits, or demands been made in the past 5 years" and "Are you aware of
any fact or circumstance, act, error, omission or personal injury which
might be expected to be the basis of a claim or suit?"
IME, "claims made" means claims made known to the covered person and
reported to the insurance company during the coverage period, not claims
reported to the insurance company during the coverage period. In
malpractice class (4 hours of continuing ed every 3 years that gets you
a lower insurance rate), they always tell us that when in doubt, notify
the insurer, so there's no issue about potential claims you were aware
of that weren't reported.
Lawyer E&O may be different than accountant E&O, but the insurance
company isn't stupid in either case. :)
Phoebe :)
cbreitel
> Seems like you could pull a fast one on the insurance company with a
> "claims-made" policy if it's like you described.
>
> Example: I have a company that's uninsured and I make a major mistake and
> the client comes to me telling me he's going to sue for $20,000,000. I then
> tell him "Ok, I'll mail you my insurance info" and I then race down to the
> broker's office and take out a policy. I then give him the info and he files
> the claim with them. It's then '"made" (i.e. brought to the attention of the
> insurer) during the period of time that the policy is in effect' and they'd
> have to pay off on it (assuming they/I lost the lawsuit.) So what's to
> prevent such a thing as that from happening?
>
> Not trying to say you're wrong but apparently I'm missing something here.
Your hypothetical doesn't prove your point. You would have to commit
insurance fraud for it to work. While investigating the claim, the
insurer could very well ask you as the insured to submit to an
examination under oath. If there are questions about the validity of
your coverage, it could also file a separate "declaratory action"
lawsuit against you in which coverage is contested, even though the
insurer agrees to provide you a defense temporarily while coverage is
being investigated. As part of that dec action lawsuit, you would have
to repeat your fraud and your lies under oath in depositions,
interrogatories, and maybe even in trial.
Mike Jacobs
> I am a lawyer who litigates professional liability insurance issues. In
> the laws of most states it is not easy to pierce the corporate veil and
> disregard the corporate entity, if the sole practitioner has done a
> competent job of maintaining a sufficient distinction between himself
> and the entity. A lawyer can sue an individual personally if he or she
> likes, but the individual will be dismissed from the lawsuit if the
> simple steps required to keep the individual distinct from the entity
> have been followed.
I'm not sure I follow your logic. Yes, the PC or LLC structure will
shield the partners and/or sole principal owner of the corporation from
individual liability (and exposure to loss of personal assets) if one
of his employees screws up. But I'm not aware of any situation in
which a corporate structure will shield the actual tortfeasor from
personal liability for his own negligent actions. Whether a principal
or an employee, the person who actually commits the wrong is always
personally at risk of being found liable, and financially responsible,
for his own negligence under the law of every common law jurisdiction
I'm familiar with. It's not necessary to pierce any corporate veils
to impose such liability, anymore than it is to sue the individual
truck driver who ran a red light and caused a wreck instead of suing
the company he works for. Or are you talking about something else that
I didn't grasp?
Robert Bonomi
In the situation of "professional services" being provided through a
corporation, the professional (flesh-and-blood person, as distinct from
the corporate 'person') who delivers the services is at personal risk,
if they fail to perform to the standards of their profession.
Someone who is unhappy enough with the work product delivered by the
corporation so as to sue them, *is* going to allege that the party
performing the work was doing sub-standard work.
In a large organization, where the professional's work product is
reviewed/approved by others in the management chain, an argument
can be made (frequently successfully) that the work _was_ being done
to the standards of _that_corporation_, and that the professional
was thus _not_ negligent and/or incompetent in their delivery.
In the case of the sole-practitioner corporation, the situation is
much more muddy. *All* the decisions are being made by the same
person. Without 'peer review' of any sort. *MUCH* easier to argue
failure to perform to industry standards.
Stan Brown
<mjaco...@gmail.com>:
> But I'm not aware of any situation in
> which a corporate structure will shield the actual tortfeasor from
> personal liability for his own negligent actions. Whether a principal
> or an employee, the person who actually commits the wrong is always
> personally at risk of being found liable, and financially responsible,
> for his own negligence under the law of every common law jurisdiction
> I'm familiar with.
This matches what my attorney told me back in 1984/1985 when I
started my solo consulting business. It's not a matter of piercing
the corporate veil: the corporation and the (sole) employee who
actually did the work would both be sued.
cbreitel
>
> I'm not sure I follow your logic. Yes, the PC or LLC structure will
> shield the partners and/or sole principal owner of the corporation from
> individual liability (and exposure to loss of personal assets) if one
> of his employees screws up. But I'm not aware of any situation in
> which a corporate structure will shield the actual tortfeasor from
> personal liability for his own negligent actions. Whether a principal
> or an employee, the person who actually commits the wrong is always
> personally at risk of being found liable, and financially responsible,
> for his own negligence under the law of every common law jurisdiction
> I'm familiar with. It's not necessary to pierce any corporate veils
> to impose such liability, anymore than it is to sue the individual
> truck driver who ran a red light and caused a wreck instead of suing
> the company he works for. Or are you talking about something else that
> I didn't grasp?
The original poster wants to start a business as a patent agent. If he
handles his business properly, he will have his clients sign retainer
agreements and/or contracts. Each of those contracts will have two
parties to it: the client, and the corporation/LLC under which the
patent agent is doing business. The human agent himself is not a party
to the contract. Only the corporate entity is. Yes he can certainly be
sued personally (anyone can; President Bush can), but his civil defense
lawyer has a good likelihood of sucess on dismissing him personally IF
the agent has been diligent in maintaining the distinction between
himself and his corporaiton.
Of course the analysis changes if you look at a traffic accident. Each
of us has a personal duty in tort to other drivers on the road. That
duty doesn't end just because we climb into a vehicle that happens to
be our company car. But a professional liability situation is often
different because the liability arises strictly in the context of a
contractual relationship, where the injured plaintiff hired a defendant
tortfeasor.
Mike Jacobs
We were not talking about contractual liability, but tort liability
(the kind that insurance is usually meant to cover), and of course you
know that privity of contract has not been required for tort liability
since the mid-19th century. If an individual actor acts negligently,
and his negligence hurts someone, he is potentially liable for that
harm, period, even if the injured person contracted with the
corporation that employs the tortfeasor rather than directly with the
tortfeasor.
As I guess you also already know, your position is directly contrary to
the (more conservative) warning of potential liability I give my
clients based on MD law when this issue comes up, and apparently also
contrary to the approach recommended by fellow netizen Stan Brown's
attorney based on NY law. I'd hate to think that any professional
person may be taking unnecessary risks of implicating their pewrsonal
assets if they get sued for negligence in advising their clients, due
to a mistaken belief that their corporate structure will shield them
from any possible personal tort liability.
Maybe the law in your state _is_ different. Can you offer us a citation
to a case holding that an individual professional, working within a
properly set up corporate structure, is immune from _tort_ liability
when sued for professional negligence? Can be a doctor, lawyer,
engineer, corporate director, architect, whatever. It's my
understanding this liability arises directly from his personal
involvement in and responsibility for his own negligent actions or
omissions that injured the plaintiff and has nothing to do with
piercing any veils.