ARTICLE
Audio (MP3) Listen in New Window Presentation (PDF) Open in new window Two Parts of This presentation. 1. Professional Liability as it relates to the standard marketplace. 2. Alternative Risk Transfer “ART” mechanisms as it relates to Professional Liability Foundational Question: What standard of care is used under a Professional Liability Policy? IN Patients Compensation Fund “PCF” http://www.in.gov/idoi/2607.htm https://www.indianapcf.com/Public/index.aspx http://www.in.gov/idoi/files/FAQ_11-13-12.pdf Commercial General Liability "A standard insurance policy issued to business organizations to protect them against liability claims for bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability. The CGL policy was introduced in 1986 and replaced the "comprehensive" general liability policy." Professional Liability “The term ‘professional’…means something more than mere proficiency in the performance of a task and implies intellectual skill as contrasted with that used in an occupation for production or sale of commodities. A ‘professional’act or service is one…involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual. In determining whether a particular act is of a professional nature or a ‘professional service’ we must look not to the title or character of the party performing the act, but to the act itself." Marx v. Hartford Accident and Indemnity Co. 157 NW 2d 870 (Neb. 1968) Professional Liability Exposures General Liability A hollow offering: - Premises Liability may not apply because most employees are in the field - Products/Completed Operations may not apply because the product is a service that is excluded on most GL policies - Personal Advertising & Injury – covers libel, slander, misappropriation of ideas GL Endorsements The Insurer has the discretion to offer the following: - Abuse & Molestation Coverage - Hired and Non-owned Auto Coverage - Directors & Officers Coverage might apply to professional liability as an endorsement or as a separate policy/form. Close Nexus/Familial Tie Employees Questions: When are non-medical social service employees technically relieved of their job duties? Although the State requires licensure of each company working with developmentally disabled patients, does this imply that employees with no license or certification must be treated with an elevated standard of care? Additional Professional Liability Questions Claims Made vs. Occurrence Forms Claims Made – coverage will react as long as the claim was filed within the same policy year as when the claim occurred. If not, tail coverage could be offered. Occurrence – coverage will react to cover claims even if the claim was filed after the expiration of a policy Professional Liability “PL” Options 1. Individual PL vs. Commercial PL - Employees are likely to be viewed within the scope of business of the company. Individual PL may not be relevant. 2. Directors & Officers “D&O” vs. Professional Liability - D&O’s main purpose is toward the management of the business. Rating Basis of PL & GL Class Codes Workers compensation (ICRB) 8864 - Social Services (non-medical) 8835 – Home Health Care (medical) General or Professional Liability 46800 – Social Service Organizations 44501 – Home Health Care Services Alternative Risk Transfer “ART” “Any risk retained outside of the traditional insurance market place that is regulated by any applicable foreign jurisdiction or U.S. State Statute.” - This broad definition allows for the necessary flexibility for a risk manager to assess between the following options when choosing how to cover exposure. - Standard/Admitted Insurance Markets - Self Insurance - Alternative Risk Management Benefits of Alternative Risk Transfer Vehicles - Incurred But Not Reported “IBNR” value added - Recovery of underwriting profit - Ability to draft forms that are more particularized to the exposure of the business - Deductibility under Internal Revenue Code § 162(a) (1954) Alternative Risk Must Comply with the Following Principles Common Notions of Insurance Risk Shifting – shifting of an identifiable risk of the insured to the insurer (transfer of risk to a separate party) Risk Distribution – sufficient amount of independent and unrelated risk to confirm with the law of large numbers Two Types of ART Captive Insurance Definition: An insurance company that has as its primary purpose the financing of the risks of its owners or participants. Typically licensed under special purpose insurer laws and operated under a different regulatory system than commercial insurers. The intention of such special purpose licensing laws and regulations is that the captive provides insurance to sophisticated insureds that require less policyholder protection than the general public. Risk Retention Groups “RRG’s” Definition: A risk retention group (RRG) is an alternative risk transfer entity created by the federal Liability Risk Retention Act (LRRA). RRGs must form as liability insurance companies under the laws of at least one state—its charter state or domicile. The policyholders of the RRG are also its owners and membership must be limited to organizations or persons engaged in similar businesses or activities, thus being exposed to the same types of liability. Most RRGs are regulated as captive insurance companies. However, RRGs domiciled in states without captive law are regulated as traditional insurance companies. Factors to evaluate in any ART formation: - Verify your existing coverage - Be hyper diligent with risk pools that assist with risk distribution - Unbundled service providers - Verify the financial status of any ART formation - ART formations are long term, not short term considerations. ---- Abel Contreras, ACI, J.D., Commercial Lines Insurance Agent, Merritt Hall Insurance abelc@consolidatedins.com / 317-247-7737
Two Types of ART Captive Insurance Definition: An insurance company that has as its primary purpose the financing of the risks of its owners or participants. Typically licensed under special purpose insurer laws and operated under a different regulatory system than commercial insurers. The intention of such special purpose licensing laws and regulations is that the captive provides insurance to sophisticated insureds that require less policyholder protection than the general public. Risk Retention Groups “RRG’s” Definition: A risk retention group (RRG) is an alternative risk transfer entity created by the federal Liability Risk Retention Act (LRRA). RRGs must form as liability insurance companies under the laws of at least one state—its charter state or domicile. The policyholders of the RRG are also its owners and membership must be limited to organizations or persons engaged in similar businesses or activities, thus being exposed to the same types of liability. Most RRGs are regulated as captive insurance companies. However, RRGs domiciled in states without captive law are regulated as traditional insurance companies. Factors to evaluate in any ART formation: - Verify your existing coverage - Be hyper diligent with risk pools that assist with risk distribution - Unbundled service providers - Verify the financial status of any ART formation - ART formations are long term, not short term considerations. ---- Abel Contreras, ACI, J.D., Commercial Lines Insurance Agent, Merritt Hall Insurance abelc@consolidatedins.com / 317-247-7737