New Jersey and New York Errors & Omissions State Endorsements
Mandatory New Jersey State Endorsements – There are two mandatory endorsements attached to “admitted” New Jersey attorney malpractice policies. The first endorsement states that deductibles shall apply only to damages (as opposed to damages and defense costs).
The second is more complicated and applies to policies with limits of $1 million or higher. This endorsement states that claims expenses up to 50% of the policy’s limit of liability will not reduce the limit of liability. Thus, if a policy limit is $1 million per claim, the carrier will pay the first $500,000 in claims expenses, and these expenses will not reduce the limit of liability (i.e. there would still be $1 million to pay damages).
If claim expenses exceed $500,000, the next $500,000 in claims expenses can reduce the insured’s limit of liability. The limit, however, cannot be reduced by more than 50% – always leaving the insured with a minimum of $500,000 to pay damages. If claims expenses still need to be paid after the limit of liability has been reduced by 50%, remaining claim expenses will not reduce the limit of liability.
New York State Endorsements - In New York, claims expense for policies with limits greater than $1 million may be 50% offset or in addition to the limit of liability. If the limits are in addition to the limit of liability, the deductible becomes a damages only deductible. If the limits are 50% offset, the deductible becomes a 50% offset deductible.
A 50% offset deductible means that the firm pays 50% of the deductible while the claim is in the defense stages and the other 50% if a judgment/settlement is made. If the claim turns out to be frivolous, it protects at least 50% of the deductible payment.