Professional Liability Insurance

1. Professional Liability Insurance

2. Professional liability insurance coverage is needed for protection against: • Professional liability claims (e.g., malpractice) • Injuries to patients that occur on the office premises • Monetary loss due to theft, burglary, fraud and similar crimes • Loss of personal property to fire, wind, flood, lightning and other perils • On the job injuries to employees (if not eligible for worker’s compensation coverage)

3. Typical liability policy coverage includes: • malpractice • defamation • product liability • premises liability • vicarious (employee) liability Note: policies do not cover intentional offenses like fraud, HIPAA violations, sexual harassment, or fines for failure to comply with state and federal law.

4. “Indemnification” of professional liability claims can be required by an employer: • Are you covered for liability claims under your employer’s policy? • Employment agreements for associates and commercial practice lease agreements often include clauses that require the employer or commercial entity to be “indemnified” for any costs of defending or paying for a professional liability claim • This means the associate or lessee optometrist has to reimburse the employer or lessor for a judgment or settlement! • Thus professional liability insurance must be taken out by the associate or lessee

5. There are 2 types of liability policies: • occurrence: covers all omissions during the period premiums were paid, even if the case is filed after payments have stopped • claims made: only covers claims made while premiums are being paid; a reporting endorsement must be purchased to cover the “risk tail“ (period from cessation of payment to the date claims will be barred by the statute of limitations) • occurrence policies are more expensive

6. The benefits of coverage include: • costs of defense, including attorney's fees • judgments or settlements to the policy limit (which should be at least $1/3 million; $2/5 million can be purchased at reasonable cost) • right to refuse settlement (not provided in most policies) • "umbrella" coverage (to extend coverage limits) should be added, but it is usually not offered for malpractice insurance

7. “Umbrella” insurance is desirable because: • coverage begins where policy limits end • it is usually sold in $1, $2, and $5 million increments • the cost of coverage is relatively modest Example: a patient is injured in an accident on the premises and is permanently, totally disabled. The OD has a $1/$3 million policy, but has to pay a judgment of $2 million. The standard policy will pay $1 million, but if there was a $2 million umbrella, the whole judgment would be paid. Note: judgments for blindness caused by negligence have been as high as $13 million

8. Additional coverage is needed for: • Liability for professional employees (i.e., optometrists, opticians) • work-related injuries to employees (if there are too few employees to qualify for workman's compensation) • embezzlement (an all-too-frequent occurrence)

9. Protection against theft by employees (i.e., embezzlement) may be obtained by purchasing: • employee fidelity bonds (also satisfies legal requirements for “bonding” of employees) • commercial crime coverage (includes embezzlement, computer fraud, theft, robbery, and burglary) • employment practices liability insurance (expensive, for large employers, but covers sexual harassment, discrimination, and wrongful termination claims)

10. Costs of professional liability insurance coverage: • The cost of premiums is based on actuarial experience; in jurisdictions that are more litigious, the cost of coverage will be higher • Premiums are not higher for optometrists who practice “medical” optometry • For a $1,000,000/$3,000,000 claims made policy, the average cost of coverage for an optometrist is less than $1,000 • The same coverage for an ophthalmologist costs in excess of $15,000

11. National Practitioner Data Bank • The NPDB assists regulatory boards in the review of health care practitioners’ professional credentials. • Reports must be submitted to the NPDB when an insurer makes a malpractice payment in response to a claim against a practitioner, and when a health care entity, state licensing board, or professional society takes an adverse action against a practitioner.

12. National Practitioner Data Bank • NPDB information is available to state licensing boards, hospitals, professional associations and other entities which license, hire, or grant privileges or membership to health care practitioners. • Because of the use of this information by state boards, settlement of a liability claim can lead to disciplinary action. Individual practitioners may query the NPDB to determine if personal disciplinary information is in the data bank and if the information is correct.

13. Fire insurance should be obtained for personal property; so also should coverage for loss of personalty from other perils (e.g., wind, flood, lightning). “Replacement value” or “extended replacement value” is the preferred type of coverage. This ensures that the actual cost of replacing the equipment will be paid.When a loss due to fire or other perils is indemnified (reimbursed) by the insurer, this income is not taxable.

14. Fire insurance for a building must meet special requirements: • Because buildings appreciate in value, fire insurance coverage has to be kept up-to-date • For a building (structure) to be protected against total loss, it must be insured for at least 80% of its fair market value Example: an $800,000 building is insured for $600,000, and fire causes a $600,000 loss. Full coverage would be $640,000 (80% of $800,000), so the building is 93% insured (600 K ÷ 640 K). The insurance will only cover 93% of the loss (600 K x 93%=$558 K), so the owner must pay $42,000.

15. Worker’s Compensation Worker’s Compensation laws were enacted to provide benefits for employees injured in on-the-job accidents or by occupational diseases, and to limit the liability of employers for legal claims based on these accidents or diseases. Employees are guaranteed a “benefit certain” for their injuries or illness, which is paid for by insurance purchased by the employer. In return, the employer is protected by the “exclusive remedy” provisions of the law, which means that the employee cannot sue for damages.

16. All states have worker’s compensation statutes.These state laws determine whether an employer must participate in worker’s compensation. In Alabama, an employer with more than 4 employees—full time or part time—must have worker’s compensation insurance coverage.

17. Generally, there are 5 ways for an employer to cover worker’s compensation liability: • Purchase insurance from an approved commercial worker’s compensation carrier • Obtain coverage through a group self-insurance fund • Provide self-insurance, if the employer is qualified to do so • If commercial insurance carriers will not provide insurance, the employer may purchase insurance through the state’s “assigned risk pool” • Purchase an approved alternative worker’s compensation policy from an authorized insurance carrier

18. Employers with less than the requisite number of employees may elect to participate in worker’s compensation, usually by applying to the state’s worker’s compensation agency. This typically requires filling out a form. The employer may later withdraw from the plan if the employer chooses to do so.

19. Professional liability insurance policies do not usually include compensation for on-the-job injuries suffered by employees, so it is important to add coverage from a commercial carrier if not electing to apply for coverage under the worker’s compensation law. This coverage will increase the cost of the insurance policy, but will be less expensive than the payments to a worker’s compensation plan.

20. The benefits that may be claimed by injured or ill workers under worker’s compensation are limited by law. In Alabama, for permanent partial disability, payment under worker’s compensation is limited to 66 2/3 % of the average weekly earnings received at the time of injury.However, there is a ceiling on the amount that can be paid, which is $220 per week.

21. Payment for permanent partial disability is also limited in the duration of compensation paid. In Alabama, payment for the loss of an index finger is limited to 31 weeks; for the loss of a hand is 170 weeks; for the loss of an arm is 222 weeks; for the loss of an eye is 124 weeks. Thus, under worker’s compensation, the maximum amount that a worker can receive for loss of an eye is $27,280 ($220 x 124), as opposed to court judgments in excess of $1 million.Worker’s compensation benefits paid to an employee affect the insurance premiums that must be paid by the employer (they go up!).