Caption Corner Part 8 – The 3 L’s of Insurance

As licensed practitioners, there is no doubt that you should have a professional liability insurance policy to cover you for malpractice, a cyber or data breach insurance policy to insure you for HIPAA violations arising from third party information breach, and a general liability insurance policy covering your office, fire perils, bodily injury, and third party property.

This month we will continue to discuss some of the most important liability insurance terms that you need to know.

In Part 1 published in December 2016, we discussed the following:
Insurance Agent or Insurance Agency; Hazards and Perils; Limits and Sub-limits; and Insurance Claim.

In Part 2 published in January 2017, we discussed the four D’s of insurance:
Declarations; Deductibles; Direct Writer; and Dynamic Risk.

In Part 3 published in February 2017 issue, we discussed the four E’s of insurance:
Endorsements; Exclusions; Effective Date; and Extended Reporting Period.

In Part 4 published in March 2017 issue, we discussed the four F’s of insurance:
Form, Fraud, First-Party Risk, and First-Named.

In Part 5 published in April 2017 issue, we discussed the three G’s of insurance:
General Liability, Group-Owned Captive, and Guaranty Fund.

In Part 6 published in May 2017 issue, we discussed the three H’s of insurance:
Hazards, Hold Harmless Agreement, and Hard Market.

In Part 7 published in June 2017 issue, we discussed the three I’s of insurance:
Insurable Interest, Insured and Insuring Clause.

In Part 8, we discuss Liability – Joint and Several, Limit and Limitation of Risk, and Line of Business.

Liability – Joint and Several

This is a liability for actions that occur as an individual, and as a member of a group or organization. This is sometimes referred to as the “deep pocket rule”.

In other words, two or more parties (defendants) are each independently liable for the full extent of the injuries that arise from the tortious act. This allows the plaintiff to sue to recover from any one or more wrongdoers, or defendants, regardless of the defendant’s degree of negligence. Any of the defendants are therefore liable up to 100% of the damages. This is particularly useful when one defendant does not have insurance or is minimally covered by a liability policy, but the other defendants do have some form of liability coverage.

If you are a partner in a practice, you will probably be liable for your partner’s actions and named in a lawsuit, so you should make sure that you have a good liability insurance policy that will cover you individually. As a practitioner and employee, you need to confirm that if you do not own a liability policy covering yourself, that your employer covers you. Some employers’ liability policies exclude employees or contractors, or limit coverage in certain instances for employees.

Another scenario that can hurt you is if you have a comprehensive liability policy in place that covers joint and several liability, your partner has no individual coverage, and your partner commits an act that causes a lawsuit brought against you both, your liability policy may respond.

However, after the lawsuit is settled or adjudicated in court, your insurance carrier may either drop your coverage or raise your premiums. Even though you did not cause the incident, you will suffer. In small practices, it may be wise for each partner to buy their own liability policy.

There are cases where insurance carriers deny a liability claim if conditioned events such as delivered “Professional Services” as strictly defined in the policy contract were not being delivered at the time of the incident. This means that even though your partner was delivering the “Professional Services”, and not you, you as a partner, are therefore jointly and severally liable and will be sued, and your liability policy may exclude coverage for you since you were not delivering the conditional “Professional Services”.

Limit and Limitation of Risk

These terms mean essentially the same thing. They are the total amount of losses to be paid under an insurance policy expressed as either, on a per occurrence basis such as per accident or incident; or on an aggregate basis such as all losses for the policy term, usually one year. The losses include legal defense expenses and indemnity as well as settlements. It is imperative that when you evaluate liability insurance policies, that you understand the sub-limits, limits, and aggregates.

For example, many general liability insurance policies limit fire liability to only $50,000 or $150,000 per occurrence. Many insurance carriers limit fire incidents to only one fire incident per policy year. Another example is a deposition sub-limit of $5,000 with a limit of five deposition claims per policy period year. Many professional liability policies have a $1 million limit and $3 million aggregate limit per policy year. Some are as high as $3 million/$5 million.

You must understand the nature of your practice and decide what sub-limits, limits, and aggregates that best fit you. The sub-limits, limits, and aggregate limits are specified on the policy declaration page, but not all exclusions are noted, so you must thoroughly read your liability policy contract to know what is actually covered. This all relates back to the “insuring clause” that was discussed in a previous article in this series.

Line of Business

When discussing insurance, you may hear the term “line of business”. This is simply a reference to the actual classes of insurance that are grouped into one insurance line of business for statutory reporting purposes. Actuaries group like classes together so they can mathematically project the claims losses and premiums required to cover those claims losses over a long period of time.

Typical lines of business include fire, life, health, and liability insurance. More specifically, there are personal lines of insurance such as life and health Insurance and commercial lines of insurance such as business owners, product, directors and officers, errors & omission, professional liability and general liability insurance.

Insurance is highly regulated. The state insurance regulators examine actuarial business plans for insurance products that support certain premium rates for each class that can purchase the insurance product. Insurance risks vary by class occupation. For example, a heart surgeon is a much higher insurance liability risk as compared to a social worker. The frequency of claims may be lower, but the claims severity certainly is much higher.

Published July 2017