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This is why Errors & Omissions insurance is a crock… November 22, 2010

Posted by Jill (@bonnjill) in ATA, Business practices.
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Philip Auerbach, President of Auerbach Translations, sent the following letter to the ATA’s Business Practices list. I have to say I am absolutely appalled at Lloyds’ behavior, but frankly I’m not surprised. I have been telling fellow translators that E&O insurance is a huge waste of money and could potentially put a target on your back. Now we have an incident in which it is also not worth the premiums the insured party pays. I have Mr. Auerbach’s permission to repost his letter in his entirety. I have written Nick Hartmann (the current ATA President) and Dorothee Racette (the President-Elect), who have assured me they will be looking into this. Unfortunately, with this being a holiday weekend the Executive Director of ATA is on vacation this week. They have assured me he will address this as soon as he returns. I truly hope that ATA defends its members in this case, as it is an ATA-sponsored insurance policy that Lloyds is not honoring. Both Nick and Dorothee are freelancers, so I am confident that this issue will not be ignored.

I just want to point out that this is exactly why I feel LSPs and individual translators should all be part of the same organization. We all have by and large the same problems. I know a lot of LSPs feel that ATA does not address their needs, and many freelance translators feel LSPs should not be members of the ATA. Hey folks, we’re all in this together. Let’s work together to address this.

Dear fellow ATA members:

I want to bring to your attention an issue that has arisen with Lloyds, the ATA’s Errors & Omissions insurance carrier, as it affects any LSP or translator … and similar issues that are probably in all other E&O insurance policies that anyone carries.

An issue arose with a long-time member of the ATA, an LSP with over 15 years’ experience, which I directly learned about. For the first time ever, this LSP had a major dispute with a client that resulted in an insurance claim through Lloyds. The identity of the LSP (which we will call ABC) and its client are not important. What is important is how the insurance company reacted…. and how this will impact you.

An agency or a translator strives for a reputation of producing excellent quality with professionalism. Out of integrity, when an agency or a translator makes a mistake, one of three remedies is commonly proposed:

a) a discount on that project

b)a refund of any amounts already paid

c) a compensatory project of a similar or greater amount.

In this case, ABC did make some mistakes –- apparently, its first-ever serious breach of procedures — and immediately arranged a compensatory project with its client for around $12,000. Out of integrity, this was apparently more than the value of the mistakes themselves. However, after further investigation, the client then told ABC that it wanted compensation of around $30,000 for additional expenses incurred and long after project deliveries. At that point, ABC invoked its insurance through Lloyds.

Unlike homeowner’s insurance where one deals directly with the agent, ATA insurance must go through Lloyds’ lawyers in New York. The lawyers chose to ignore ABC’s terms and conditions, ostensibly because these would be diminished in view of the admission of “errors.” These ignored terms included that:

a) all challenges to projects must be submitted within ten days of delivery; and

b) all disputes were to be resolved through arbitration if the matter became serious.

In addition, ABC apparently stipulated both verbally and in writing to its client that methods the client insisted upon were likely to cause the very issues which necessitated its additional expenses for which the client wanted reimbursement.

Again, Lloyds deemed all those terms and issues as irrelevant.

More importantly to all ATA members, Lloyds’ insurance has a clause (VIII b) which says, “The insured shall not, except at their [sic] own cost, make any payment, admit any liability, settle any claims, assume any obligation or incur any expense without the written consent of the Underwriters [Lloyds].”

In other words, if you as a responsible LSP or translator agreed to a monetary or in-kind settlement with your client — such as ABC’s $12,000. compensatory project — per the standard business practices of a), b) and c) above, Lloyds will not recognize that payment…. and you will have to pay it again if insurance is invoked. And that, effectively, constitutes double compensation.

Ostensibly this clause is to protect insurers against collusion with your client or to avoid your setting a monetary “floor” from which the insurance company must operate. Those concerns are reasonable.

The ATA attorney, Jefferson Glassie, backed Lloyds in this matter and stated, “It is a common, standard, and accepted practice and term of insurance policies. Any arrangements for claim or damage reimbursement involving [ABC] are totally between the insurer and [ABC]. ATA cannot be responsible in any way for insurance claims or awards involving members insured under the Policy and is not responsible for [ABC’s] conduct.”

So, we as LSPs and translators are left with a situation where the sole E&O insurance policy that ATA offers to us violates our professional ethics and common business practices… and where the ATA executives and lawyers whose salaries are paid though our dues back the insurance company, and not their members.

When ABC passed me Mr. Glassie’s justification, I was appalled. To me, whether this is “standard insurance practice” is totally irrelevant:

It was standard practice for years in the US to deny the vote to women and Blacks.

It was / has been standard practice for years in the US to discriminate against Catholics, Jews, Blacks, women, Latinos, Asians, Gays, interracial couples and many others.

And it was standard insurance practice until this year to deny pre-existing medical conditions and certain coverage to children.

“Standard practice” does not mean a policy is right or is justified.

It is we members who pay the ATA executives and the ATA lawyer to defend our interests. These can include, for example, insisting on the insertion in the ATA’s E&O policy of an exclusion for mitigating circumstances. And if Lloyds won’t accept that, it behooves our ATA executives to find us another company’s policy that will… or perhaps to join with other associations to pressure a change collectively.

At present, you as an LSP or translator are expected to report ALL disputes to your insurance company, regardless of whether they escalate to a serious level. And if you act in good faith with your client and reach a monetary agreement first, you alone will have to pay that amount if an E&O policy is invoked; Lloyds or any other “standard practices” insurer will not cover that amount.

I cannot think of a single, experienced translator or LSP that at some time has not inadvertently passed on a mistake to a client.

Beware. The next party caught in this breach of common sense could be you.

Sincerely,
Philip Auerbach

Philip Auerbach, President
Auerbach International Inc./Translations Express

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Comments»

1. Laurent K. - November 23, 2010

On an exaggerated note: more LSP’s could have my support and sympathy if translators were not to sign extremely tricky “contracts” with leonine clauses, NDA’s stating that the LSP has the right to visit your premises for some unspecified checks.
I will not even speak of such clauses stating that translators will see their fees reduced by “correction costs” at the sole appreciation of the agency or even will be charged for penalties the end client can throw at the LSP.

2. Alex Eames - November 24, 2010

Time was when a lot of agencies (particularly ISO 9000 ones) insisted on liability insurance. You only find out how good insurance is when you need to make a claim on it. Your best insurance overall is not to take on jobs that might turn sour. How to spot them though? That’s the tricky bit.

Has an individual translator ever needed to claim on one of these policies? I haven’t heard of cases in the UK.

I do have to ask, though, why the LSP in question coughed up $12,000 without referring to the insurers first? That was a big mistake. It’s the same kind of thing as accepting responsibility if you have a car accident. Insurers (in the UK at least) always tell you not to admit responsibility. You couldn’t get a clearer admission of responsibility than a $12,000 check. 😦

Another example of getting penalised for doing the right thing. I hope this cracks open the whole liability insurance issue and makes people examine what they’re getting for their money.

3. Judy Jenner - December 28, 2010

Would you mind if I reprinted this in our NITA (Nevada Interpreters and Translators Association) newsletter? I’d add a short introduction about the issue, as most of our members are newcomers to the profession. Of course you would be able to proof the final copy before it goes to print. Please let me know if that works and whether I should also get permission from Philip. I think this is a very interesting issue that our members would really like reading about. Please let me know — thanks, girl!

4. Jill (@bonnjill) - December 28, 2010

Judy, I’m sure Philip won’t mind, but you should get his permission. After all, he is the one who wrote it.


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