Basic Issues in Your Hospital Professional Liability Form
September 2000
Renewing or moving a hospital professional
liability insurance program is a complex process. Carefully checking medical
professional liability policy provisions is doubly important because there is
no standard insurance form and variations in terms abound. This article reviews
some of the key issues you should consider.
by Bonnie
Boone
Willis Health Care Practice
Renewing or moving a hospital professional liability insurance program is
a complex process with many decision points. This article reviews some of the
key issues you should consider at your next renewal.
Choosing an Insurer
In a firming insurance market, it is important to choose an insurer who is
committed to your industry. Few risk management challenges are as stressful
as having to place coverage with another insurer after your incumbent insurer
decides to pull out of the market. There are numerous insurers that underwrite
medical malpractice/professional liability business for hospitals. However,
it is difficult to tell which insurers are committed to this line of business
and which are not.
How do you evaluate which market is better, and how do you determine those
insurers that are not committed to this line of business? There are some basic
principles.
- Does the insurer have a dedicated claims staff with experience in the
healthcare industry?
- Does the insurer have a dedicated risk management staff with clinical
expertise? Someone in the company needs to understand your business from
a clinical perspective. When you are being reviewed by Joint Commission
of Accreditation for Health Care (JCAHO), it would help if the insurer understood
the critical issues.
- Does the insurer have its own medical professional liability policy
form?
Choosing the Coverage
All of the 1999 top 20 insurers that write hospital professional liability
insurance (some are stock insurers and some are physician owned) have dedicated
medical professional liability policy forms. Some of the markets write the coverage
on an occurrence basis; others, on a claims-made basis. Some are the new, "easy-to-read
forms," others are the old-fashion insurance contracts, "that giveth coverages
in big print and taketh away those coverages with the smaller print."
What should you look for in the policy forms of today? What's important to
a risk manager or financial person with the responsibility of protecting corporate
assets? Pay attention to basic policy form issues and ask the following questions.
Is the policy form a "pay on behalf" or an "indemnify"? The pay on behalf is the preference.
Does the policy form cover defense in addition to
or within limits? Primary coverage forms normally cover defense in addition
to the limits. This is an important issue if there is an aggregate problem.
The basic issue here is that you want your limit of liability to respond or
be exhausted by only by the payment of damages, not defense costs.
Who is considered an insured? Policy forms
vary. Those normally included are:
- Your employees
- The named insured on the declaration page of policy and any subsidiary
of the named insured
- Partnerships may be covered but only with respects to the partner's
liability (the same could apply to joint ventures)
- Any director, executive, committee member, hospital administrator, stockholder,
or member of the board while acting within the scope of their duties of
the named insured (You may wish to be a bit more specific when discussing
professionals such as residents, students, fellows, faculty, and employed
physicians.)
Is the coverage written on an occurrence or claims-made
basis? You must be aware of what is considered a claim or when a claim
must be reported. It is important to understand and be aware of the reporting
requirements and what constitutes whether an incident or suit will be considered
a claim made within the policy period.
If coverage is on a claims-made basis, what is the
retroactive date? Claims made for injuries that occurred prior to the
retroactive date are not covered by the policy. It is important to cover prior
acts as far back in time as possible. Here is a good tip: Most claims-made policies
indicate that coverage will take effect after the retroactive date or subsequent
to the retro date indicated on the policy. Try to amend the policy to have the
coverage incept on or after the retro date. This would provide you coverage beginning on the first the retro date itself
rather than the day after.
If the coverage is on claims-made coverage form, is
an extended reporting period/tail coverage option included? In some states
there are limits on the premium that can be charged. Are there new limits offered
and for how long? These are important issues since this class of business is
considered "long tail."
What is the duration of the extended reporting period
if the option is exercised? Attempt to get unlimited tail coverage and
consider 36 months to be the minimum acceptable period.
What other terms govern your ability to purchase tail
coverage? Be aware of the time period allowed for you to decide whether
or not to exercise the extended reporting period option. You will normally be
allowed 30 days after the policy has expired. Most policies also require you
to request the coverage extension in writing.
When is the tail coverage premium considered "earned"? Under most policies, the tail premium is earned and will be due upon binding.
Is the policy rated on a flat or auditable basis? Try to negotiate a flat premium. With this arrangement, an increase in exposure
will not result in an automatic premium increase; it will be up to the underwriter
to request additional premiums. The downside is that you will probably not be
entitled to a return premium if your exposures decrease during the policy year.
How do your limits apply? Are there separate
aggregates for products as well as professional liability? Are there per-location
or total policy limits? It is important to understand how aggregates will be
accrued to certain policy years to keep track of aggregate exhaustion. If you
have numerous employed physicians under your policy, do they share in the total
limit available?
How does the policy define "medical services" or "professional
liability"? This definition is the foundation of the policy.
Expanding the Coverage
While this article focuses on the basics, a few suggestions for expanding
coverage are in order. A typical definition is provided in the exhibit below.
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A medical incident means any act or
omission:
in the furnishing of professional health
care services including the furnishing of food, beverages, medications
or applications in connection with the such services and postmortem
handling of human bodies or arising out of services by any person as
member of a formal accreditation, standards review or similar professional
board or committee of the insured or as a person charged with executing
the directives of such board or committee.
Any such act or omission together with
all related acts or omissions in the furnishing of such services to
any one person shall be considered one medical incident.
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If you have a dialysis center on your premises, perhaps you should change
this wording as follows:
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Any such act or omission with all related
acts or omissions in the furnishing of such services shall be considered
one medical incident no matter how many persons are involved.
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Try to expand this definition to address some of today's new healthcare practices.
For example, consider expanding it to include research and experimentation,
any managed care operations, and any Internet exposures, including bodily injury
as a result of these exposures. Any losses that may result in the loading and
unloading of any auto should also be considered.
Lastly, pay attention to the conditions and exclusions. A number of the relatively
standard provisions found on most policies present the possibility of coverage
problems and can sometimes be amended. Here are some of the common ones.
- Have the nuclear exclusion amended to provide coverage for nuclear medical
losses, i.e., radiation.
- Have the notice of occurrence amended to reference the person in your
organization that would be aware of losses/claims.
- Have the unintentional acts exclusion deleted or amended.
- Ask for coverage for punitive damages where insurable and include it
in the definition of "damages."
- Ask for coverage for administrative investigation (fraud and abuse).
- Ask for coverage for medical records as a result of any privacy issues.
- Ask for coverage for sexual abuse for the entity and defense costs for
the accused.
- Have the fellow employee exclusion deleted.
- Ask for coverage for all entities or subsidiaries where the named insured
has a controlling (at least 51 percent) interest.
- Know whether your retention applies like a deductible (where you reimburse
the insurer) or a self-insured retention (where you pay first).
- Teaching institutions should attempt to add wording to protect them
from any bodily injury losses involving education of residents or failure
to educate and train them properly. The Educator's Legal Liability policy
should provide some coverage, but there may be some gray areas.
Conclusion
Hardening insurance markets present challenges to risk managers, agents,
brokers, and underwriters alike. This is a time for risk managers, agents, and
brokers to be very careful in choosing insurers and to be diligent about verifying
the details of the policy forms they are buying or selling.
Carefully checking medical professional liability policy provisions is doubly
important because there is no standard hospital professional liability form
and variations in terms abound in the marketplace. While the recommendations
in this article are far from all-inclusive, they should provide you with a solid
foundation for your next renewal.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.