Short answer
Knowing what to do after a professional liability claim starts with reporting it to your carrier quickly. For a covered claim, the carrier usually assigns and pays a defense attorney. Your deductible depends on your policy, and with first-dollar defense it may apply only if damages are paid. This is general information, not legal advice, so follow your policy’s claim reporting instructions.
Step 1: Report the professional liability claim quickly
Professional liability is usually written on a claims-made basis. You report the claim to the policy in force when the claim is made, so continuous coverage matters.
Your policy documents explain how to report. Your insurance agent can walk you through the process, but you do not need permission to report.
Report demand letters and subpoenas too, not only lawsuits. Check how your policy defines a claim, because the definition varies.
Step 2: What the carrier does after you report
The carrier reads the complaint and decides whether it is a professional liability claim. Whether an allegation like a plan error becomes a covered claim depends on the policy terms and the facts. The carrier usually assigns a lawyer from a panel of firms that defend design professionals.
For a covered claim, the carrier typically hires and pays the lawyer directly. Many people ask whether they pay first and get reimbursed later. Generally they do not, but your policy terms control.
Can you choose your own attorney after a professional liability claim?
It varies by carrier, policy and state. Some carriers allow you to choose, some allow it with approval and some appoint counsel.
If choice of counsel matters to you, ask before you buy. Then read that section of the policy.
How the deductible works on a professional liability claim
A claim has two parts: defense costs and damages. Sometimes a claim involves only defense costs.
- Standard deductible: You usually pay it as costs come in, whether or not damages are paid.
- First-dollar defense: The deductible applies only to damages. If the claim is dismissed, you may owe nothing.
- Per-claim or aggregate deductible: An aggregate deductible caps how much you pay in deductibles across multiple claims in one policy term.
Some owners ask whether the deductible applies to the claim or to the attorney fees. That depends on the structure your policy uses, so our article on first-dollar defense versus a deductible that includes defense costs is a good place to compare the two. Then read your own deductible wording closely.
Will a lawsuit name me personally or only my firm?
Lawsuits usually name the entity that provided the services. They often name individuals too, such as the architect or engineer who worked on the project. Whether architects are personally covered by their firm’s professional liability depends on who counts as an insured under the policy.
Being named in a lawsuit does not mean anyone is found responsible.
What not to do after a demand letter
Do not admit fault or agree to a settlement without your carrier. Do not wait to see if the claim goes away, and do not respond or negotiate before you report it.
Settlement terms matter too. Some policies include a hammer clause that can change who pays if you refuse a settlement the carrier recommends, so read that wording before any settlement decision.
What professional liability does not cover
Fee disputes and job site injuries usually fall outside professional liability. A general liability policy may respond to some job site injury claims, depending on the allegations and policy terms.
What we see at Hardcover
A consulting firm was named in a lawsuit over an apartment it had only tested for air quality. The tenant sued everyone ever involved with the unit. The firm had done nothing wrong but still needed a defense, which is what the policy paid for.
What to check
- Does your policy define a claim to include demand letters and subpoenas?
- How and where does the policy say to report a claim?
- Is your coverage continuous, with no gaps?
- Does your deductible apply to defense costs, damages or both?
- What does the policy say about choice of counsel?
Related questions
What should I do if I receive a demand letter?
Report it to your carrier right away and send a copy to your insurance agent. Follow your policy’s claim reporting instructions.
Who pays the lawyer in a professional liability claim?
For a covered claim, the carrier typically hires and pays defense counsel.
Can I choose my own lawyer?
It depends on the policy and state. Some carriers allow it, some require approval and some appoint counsel.
When do I pay my deductible?
Under a standard deductible, usually as defense costs come in. Under first-dollar defense, usually only if damages are paid.