Make sure you
understand the scope
of the coverage of
your General
Liability policy.
understand the scope
of the coverage of
your General
Liability policy.
DOTmed Industry Sector Report: Insurance Providers
February 11, 2008
by Robert Garment, Executive Editor
This article is from in the January 2008 issue of DOTmed Business News. A list of registered users that provide sales & service can be found at the end.
Take this insurance test: Company X hires Company Y to install a CT in Hospital Z. Company X, a broker, sold the CT to Hospital Z "as is." Soon after a patient is injured during a scan: who does the patient sue? Probably X, Y and Z - oh, and go to the head of the class if you got the bonus answer, the OEM that made the CT. In addition, Hospital Z may sue Companies X and Y to boot.
So the correct answer is: an injured party can, and often will, sue everyone possible - particularly anyone with "deep pockets" - if the injured party thinks they can collect a liability judgment. We'll come back to this case in a minute after a brief look at the nature of "risk."
Business insurance 101: Accepting risk vs. transferring risk
In its simplest terms, insurance is a gamble. It's all about an individual or company either retaining the risks they face, i.e., remaining uninsured, or transferring the risk for a price (the premium) to an insurance company. This can be a tough judgment call because the can be so many variables; but the main factors typically are the maximum potential loss of an event, the probability that it will happened at all, and the cost of the insurance.
For example, take the risk of fire. The chance of your business burning down is very remote, so why pay for insurance? First, it's a catastrophic event, it would put you out of business. And second, because the frequency is very low, the cost is relatively low, so virtually every business has property insurance which always covers fire damage. (Incidentally, you should make sure your property insurance specifies "full replacement value" for all equipment and furnishings, not just a dollar amount. If you've expanded recently, make sure your coverage is up to date.)
Liability insurance is a lot more "iffy." While the probably that you or your employees may cause a law suit may be low, the amount of damages sought can be astronomical. So how do you weight this "bet?" One thing you need to do is take a good hard look at a factor that many people overlook.
Liability insurance and legal fees
Hopefully, you've never faced a liability law suit. If that's the case, then you may not be aware of one of key benefits of liability coverage: if a suit goes to court, it is common practice for the insurance company to pay for your legal defense. And those fees can run up to be tens, or even hundreds of thousands of dollars.
Why do insurance companies do this? Because they have a vested interest in helping you win the case, particularly since liability claims tend to be multi-million dollar claims. Some insurance companies will tell you which lawyer to use, because winning it cheaper than paying.
Now let's go back to the injured patient from the beginning. Let's say his claim turns out to be frivolous and no award is justified. You still have to go court and pay your lawyer. Without liability insurance, you're still hit with a big bill. Which is why many business people see the legal fee coverage of liability insurance reason enough to buy it.
What kind of liability coverage is available, which should you consider?
There are very few "absolutes" when it comes to liability insurance, and there's plenty of differing opinions what you should and shouldn't do to protect yourself and your business. But one this is certain, your chances of being sued are greater than ever.
General Liability
To provide coverage for a broad range of acts that could cause a law suit, General Liability coverage has evolved. This is something of an entry-level product with limits that typically are not very high. If you have, or are considering getting General Liability, check the limits.
General Liability pays losses arising from real or alleged bodily injury, property damage, or personal injury on your business premises or at other locations where you normally conduct business. Often, General Liability insurance is packaged with Property coverage in a "business-owner's policy," or BOP.
Make sure you understand the scope of the coverage of your General Liability policy. If any of the following coverages are not specifically included but relate to you, weigh the pros and cons of buying them.
Products/Completed Operations Liability
This is something many ISOs need to evaluate. If you repair, maintain, or refurbish medical equipment, Products/Completed Operations Liability insurance covers bodily injury or property damage from equipment you've serviced or sold. For instance, if you do a PM on an MRI and miss a defect in the cooling system and something goes wrong with that machine and someone is injured, or property is damaged, you can be sued.
Another reason to consider this coverage is it can make you more "saleable" to both new and existing customers. If a hospital knows you have Products-Complete Liability coverage, then they know there's an insurance company behind you.
If you plan to hire a company to do technical or engineering work for you, such as an installation or deinstallation, ask to see their Products/Completed Operations Certificate of Insurance before using them. Also be sure to have them name you as an Additional Insured under that policy. That way if a claim is made against you because of work they did, their insurance company will defend you, and your insurance company can be kept out of the loop.
Product Liability Insurance
Product liability insurance isn't just for OEMs. While Products/ Complete Operations Liability will cover most of the work you or your engineers perform on equipment, if you say you remanufacture equipment, the OEM may be off the hook and you may be on it. You should definitely talk to your insurance agent about this coverage.
Employment Practices Liability Insurance - EPLI
As we have noticed, today anybody can sue anybody for anything. One area that has become an expanding minefield is called Employment Practices Liability. Typical law suits here can arise from alleged transgressions in the workplace by employers, and you can be sued for sexual harassment, abusive behavior, unjustified termination because of age, race, religion, etc.
As with other liability coverage, the benefit here is not just the insurance coverage. EPLI law suits can be extremely subjective, and the possibility of a disgruntled employee filing what ends up to be a false, yet nevertheless very expensive lawsuit, makes EPLI worth considering. EPLI is also not just for big companies; if you have 10-15 or more employees, you should at least ask for a quote for this coverage.
"Will that be Occurrence or Claims-made?"
Occurrence and claims-made policies are the two basic "flavors" liability insurance come in - by comparison, property insurance is simple and straightforward. Here's a simple way to understand how they differ: claims-made insurance is like term life insurance. You have coverage as long as you pay your annual premium; if you stop paying, you no longer have coverage, and the policy has no value - the policy is finite. Occurrence liability coverage never ends. Even after you stop paying your premium, your policy provides coverage indefinitely for any acts that occurred when the policy was in force, even is the claim is made years in the future. Most experts agree that an occurrence policy, because coverage never ends, is superior to a finite claims-made policy.
That's the theoretical side. In practice these two type of liability coverage can, and do, get very complicated.
Because occurrence policies leave the insurance company liable to pay a claim years into the future, it's difficult to price. To protect themselves, the underwriters typically charge a higher premium for an occurrence vs. a claims-made policy. One might think that the insurance companies would abandon occurrence forms entirely, but that is not the case. Today, liability is written under both types of coverage.
Occurrence forms are typically used today for liabilities where the chance of a claim are low, and the limits are low, factors which help keep the price down. Claims-made forms are used for liabilities which are more likely to occur, and have higher financial repercussions. Because claims-made insurance does not expose the underwriter to claims beyond the term of the policy, the cost can be more accurately determined.
But wait, there's more...
If you get a claims-made liability policy and renew that policy annually with the same company, however, it starts to act like an occurrence policy. The date the policy goes into effect the first year becomes your "retroactive date" - which is simply the starting date of your coverage. In the second, third, and subsequent years, that date stays the same. So while you're paying insurance on an annual basis, your coverage becomes multi-year.
The real complications arise when you switch carriers, or retire. If you switch - let's say to get a lower premium - you get a new retroactive date (start date), and the new policy won't cover claims from before that date. However, your new insurance company, for a hefty premium, may write a "priors act" policy. This coverage has a retroactive date that goes back several years, depending on the terms negotiated. But we aware, your new insurance company is not obligated to offer this coverage.
If you decide to retire and have a claims-made policy, your liability protection ceases. However, there is a remedy for this, too. It's called a "tail" policy, though perhaps it should be called a "forward-looking" policy, because it gives your claims-made coverage addition life for several years into the future, should you get sued.
One common problem develops when you get liability coverage after having been in business for several years. Neither take policy will cover claims that may arise from that time period - not even an occurrence form.
Talk to your agent
We've just looked at the tip of the iceberg from a lay person's perspective regarding business liability insurance.
We recommend you talk to an insurance agent for more information. There other coverages to consider, and your business needs a customized insurance program that addresses your specific needs.
DOTmed Registered Insurance Provider Companies
Names in boldface are Premium Listings.
Domestic
Jack Mann, G F Mann Insurance, IL
Charlie Tice, Patterson McKenna Agency, NJ
Take this insurance test: Company X hires Company Y to install a CT in Hospital Z. Company X, a broker, sold the CT to Hospital Z "as is." Soon after a patient is injured during a scan: who does the patient sue? Probably X, Y and Z - oh, and go to the head of the class if you got the bonus answer, the OEM that made the CT. In addition, Hospital Z may sue Companies X and Y to boot.
So the correct answer is: an injured party can, and often will, sue everyone possible - particularly anyone with "deep pockets" - if the injured party thinks they can collect a liability judgment. We'll come back to this case in a minute after a brief look at the nature of "risk."
In its simplest
terms, insurance
is a gamble.
terms, insurance
is a gamble.
Business insurance 101: Accepting risk vs. transferring risk
In its simplest terms, insurance is a gamble. It's all about an individual or company either retaining the risks they face, i.e., remaining uninsured, or transferring the risk for a price (the premium) to an insurance company. This can be a tough judgment call because the can be so many variables; but the main factors typically are the maximum potential loss of an event, the probability that it will happened at all, and the cost of the insurance.
For example, take the risk of fire. The chance of your business burning down is very remote, so why pay for insurance? First, it's a catastrophic event, it would put you out of business. And second, because the frequency is very low, the cost is relatively low, so virtually every business has property insurance which always covers fire damage. (Incidentally, you should make sure your property insurance specifies "full replacement value" for all equipment and furnishings, not just a dollar amount. If you've expanded recently, make sure your coverage is up to date.)
Liability insurance is a lot more "iffy." While the probably that you or your employees may cause a law suit may be low, the amount of damages sought can be astronomical. So how do you weight this "bet?" One thing you need to do is take a good hard look at a factor that many people overlook.
Liability insurance and legal fees
Hopefully, you've never faced a liability law suit. If that's the case, then you may not be aware of one of key benefits of liability coverage: if a suit goes to court, it is common practice for the insurance company to pay for your legal defense. And those fees can run up to be tens, or even hundreds of thousands of dollars.
Why do insurance companies do this? Because they have a vested interest in helping you win the case, particularly since liability claims tend to be multi-million dollar claims. Some insurance companies will tell you which lawyer to use, because winning it cheaper than paying.
Now let's go back to the injured patient from the beginning. Let's say his claim turns out to be frivolous and no award is justified. You still have to go court and pay your lawyer. Without liability insurance, you're still hit with a big bill. Which is why many business people see the legal fee coverage of liability insurance reason enough to buy it.
What kind of liability coverage is available, which should you consider?
There are very few "absolutes" when it comes to liability insurance, and there's plenty of differing opinions what you should and shouldn't do to protect yourself and your business. But one this is certain, your chances of being sued are greater than ever.
General Liability
To provide coverage for a broad range of acts that could cause a law suit, General Liability coverage has evolved. This is something of an entry-level product with limits that typically are not very high. If you have, or are considering getting General Liability, check the limits.
General Liability pays losses arising from real or alleged bodily injury, property damage, or personal injury on your business premises or at other locations where you normally conduct business. Often, General Liability insurance is packaged with Property coverage in a "business-owner's policy," or BOP.
Make sure you understand the scope of the coverage of your General Liability policy. If any of the following coverages are not specifically included but relate to you, weigh the pros and cons of buying them.
Products/Completed Operations Liability
This is something many ISOs need to evaluate. If you repair, maintain, or refurbish medical equipment, Products/Completed Operations Liability insurance covers bodily injury or property damage from equipment you've serviced or sold. For instance, if you do a PM on an MRI and miss a defect in the cooling system and something goes wrong with that machine and someone is injured, or property is damaged, you can be sued.
Another reason to consider this coverage is it can make you more "saleable" to both new and existing customers. If a hospital knows you have Products-Complete Liability coverage, then they know there's an insurance company behind you.
If you plan to hire a company to do technical or engineering work for you, such as an installation or deinstallation, ask to see their Products/Completed Operations Certificate of Insurance before using them. Also be sure to have them name you as an Additional Insured under that policy. That way if a claim is made against you because of work they did, their insurance company will defend you, and your insurance company can be kept out of the loop.
Product Liability Insurance
Product liability insurance isn't just for OEMs. While Products/ Complete Operations Liability will cover most of the work you or your engineers perform on equipment, if you say you remanufacture equipment, the OEM may be off the hook and you may be on it. You should definitely talk to your insurance agent about this coverage.
Employment Practices Liability Insurance - EPLI
As we have noticed, today anybody can sue anybody for anything. One area that has become an expanding minefield is called Employment Practices Liability. Typical law suits here can arise from alleged transgressions in the workplace by employers, and you can be sued for sexual harassment, abusive behavior, unjustified termination because of age, race, religion, etc.
As with other liability coverage, the benefit here is not just the insurance coverage. EPLI law suits can be extremely subjective, and the possibility of a disgruntled employee filing what ends up to be a false, yet nevertheless very expensive lawsuit, makes EPLI worth considering. EPLI is also not just for big companies; if you have 10-15 or more employees, you should at least ask for a quote for this coverage.
"Will that be Occurrence or Claims-made?"
Occurrence and claims-made policies are the two basic "flavors" liability insurance come in - by comparison, property insurance is simple and straightforward. Here's a simple way to understand how they differ: claims-made insurance is like term life insurance. You have coverage as long as you pay your annual premium; if you stop paying, you no longer have coverage, and the policy has no value - the policy is finite. Occurrence liability coverage never ends. Even after you stop paying your premium, your policy provides coverage indefinitely for any acts that occurred when the policy was in force, even is the claim is made years in the future. Most experts agree that an occurrence policy, because coverage never ends, is superior to a finite claims-made policy.
That's the theoretical side. In practice these two type of liability coverage can, and do, get very complicated.
Because occurrence policies leave the insurance company liable to pay a claim years into the future, it's difficult to price. To protect themselves, the underwriters typically charge a higher premium for an occurrence vs. a claims-made policy. One might think that the insurance companies would abandon occurrence forms entirely, but that is not the case. Today, liability is written under both types of coverage.
Occurrence forms are typically used today for liabilities where the chance of a claim are low, and the limits are low, factors which help keep the price down. Claims-made forms are used for liabilities which are more likely to occur, and have higher financial repercussions. Because claims-made insurance does not expose the underwriter to claims beyond the term of the policy, the cost can be more accurately determined.
But wait, there's more...
If you get a claims-made liability policy and renew that policy annually with the same company, however, it starts to act like an occurrence policy. The date the policy goes into effect the first year becomes your "retroactive date" - which is simply the starting date of your coverage. In the second, third, and subsequent years, that date stays the same. So while you're paying insurance on an annual basis, your coverage becomes multi-year.
The real complications arise when you switch carriers, or retire. If you switch - let's say to get a lower premium - you get a new retroactive date (start date), and the new policy won't cover claims from before that date. However, your new insurance company, for a hefty premium, may write a "priors act" policy. This coverage has a retroactive date that goes back several years, depending on the terms negotiated. But we aware, your new insurance company is not obligated to offer this coverage.
If you decide to retire and have a claims-made policy, your liability protection ceases. However, there is a remedy for this, too. It's called a "tail" policy, though perhaps it should be called a "forward-looking" policy, because it gives your claims-made coverage addition life for several years into the future, should you get sued.
One common problem develops when you get liability coverage after having been in business for several years. Neither take policy will cover claims that may arise from that time period - not even an occurrence form.
Talk to your agent
We've just looked at the tip of the iceberg from a lay person's perspective regarding business liability insurance.
We recommend you talk to an insurance agent for more information. There other coverages to consider, and your business needs a customized insurance program that addresses your specific needs.
DOTmed Registered Insurance Provider Companies
Names in boldface are Premium Listings.
Domestic
Jack Mann, G F Mann Insurance, IL
Charlie Tice, Patterson McKenna Agency, NJ