The Agency Business: Malpractice insurance climbs the list of agency considerations

PR's rising prominence in the corporate world still hampered by broad distrust has prompted many agencies to purchase insurance in an effort to further protect themselves.

PR's rising prominence in the corporate world still hampered by broad distrust has prompted many agencies to purchase insurance in an effort to further protect themselves.

It appears that it is now becoming more common for PR pros to enjoy that dubious distinction. They are carrying so-called Errors & Omissions (E&O) insurance that covers legal costs, settlements, and damages that might arise from alleged negligence, breach of duty, or other failures. "I would say it's definitely been on the rise the last four or five years," says Brian Chiolan, assistant VP of The Hartford, which writes such polices. Chiolan says this is due to three factors: In their contracts, companies are beginning to require their PR agencies to carry E&O insurance. With the rise of the internet, "any PR announcement now is almost worldwide in scope, so the potential claims against you significantly increase." And, finally, the general distrust of business these days. Claims can come from two sources: an agency's client (for "inadequate advice," say) or an outside party. The classic example of the latter is Nike v. Kasky. In that infamous case, an activist sued the sneaker maker, alleging it had lied in press releases and op-eds about its overseas labor practices. The red-hot debate over whether those statements were protected speech fizzled out when the US Supreme Court decided last year that it never should have agreed to hear the case and the parties eventually settled. "I can guarantee you that every large PR firm has E&O insurance," says Meredith Pearl, assistant VP of the executive-liability practice at insurance broker Palmer & Cay. Ruder Finn and Ketchum confirm that they carry it. It's not uncommon (though not often publicized) for small PR firms to be sued over "bad advice," adds Pearl. "I do know a number of firms have it and have for a long time," says Kathy Cripps, president of the Council of PR Firms. "It's just not talked about." Denver-based PR firm Schenkein got a policy a year ago. "A main reason we pursued it was several of our clients required it in our contract," says Leanna Clark, a principal at the firm. Clark says the clients come from a variety of industries. The one common fact about them is that they're all publicly traded. She says most were new clients, but one was an existing client that added the requirement at renewal. "People have negative connotations that you're buying this," says Schenkein CFO Abby Sommo. "A lot of it is to defend legal costs against meritless charges rather than something you did." Clark says the agency, with 30 PR practitioners, pays $10,000 a year for the $1 million professional-liability policy from Chubb. "They looked at our approval processes, and we were able to get a lower price than what might have seemed. We've never used it, and I hope we never will. On the positive side, it shows PR is being looked at as a professional service, but it comes with these kinds of risks." The Environment PR Group, a seven-person shop in Tampa, FL, began to carry E&O insurance about five years ago, says president Honey Rand, because it was required by a then-new (and still current) client - Broward County's Department of Planning and Environmental Protection. The agency has had past clients that required it - all from government. Rand says the Environmental PR Group's $1 million policy, which the agency has never had to use, is from Philadelphia Insurance Companies and costs $1,200 a year. She points out that the Broward County contract is fairly large at about $200,000 a year. "The investment is small in order to make sure they get what they need for the contract," she says. The Hartford writes policies starting at $10,000 for $1 million in coverage. Chiolan says factors the company looks at in determining price include billings, risk-management procedures, if the agency has ever been sued, who its clients are, whether it has contracts with those clients, and whether the contracts contain a limitation of liability. The larger the agency, the more expensive the insurance.
  • PRWeek welcomes topic ideas for future Agency Business columns. Please send them to news@prweek.com. What to ask when buying E&O insurance Some questions PR offices should ask an agent when considering E&O insurance:
  • What is the amount of the deductible? When is it to be paid?
  • Will the deductible apply to "first-dollar" defense costs?
  • What are the exclusions (acts not covered by the policy)?
  • Can any of these exclusions be covered by an endorsement?
  • Does the policy allow the insured to approve any settlement?
  • Are "claims costs" (attorney's fees, etc.) included in the overall policy limits?
  • Does the policy have "tail" coverage (extended reporting period)? That is, will it cover you for some period after you leave the company?
  • Is there "prior acts" coverage to cover transactions and acts that occurred before the policy went into effect? Source: Insurance Information Institute

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