Models Of Managed Health Care
CRIMINAL ACTS AND INSURANCE COVERAGE
A physician was convicted for the sexual assault of a minor. He was then sued in federal court for civil damages. An insurer had issued medical malpractice policies to the physician. Under the policies, the insurer agreed to pay on behalf of the insured all sums that the insured became legally obligated to pay as damages because of bodily injury or personal injury resulting from rendering or failing to render, during the policy period, professional services by the insured. The policies contained an express exclusion barring liability of the insurer for any acts of the insured arising out of the performance of a criminal act.
Does sexual assault constitute rendering professional services within the coverage provisions of the physician’s insurance policy? Should a malpractice insurer be required to indemnify a physician for liability resulting from the sexual assault of a minor?1
WHAT IS YOUR VERDICT?
I never was ruined but twice—once when I gained a lawsuit, and once when I lost one.
—Francois Marie de Voltaire (1694–1778)
Learning Objectives
The reader, upon completion of this chapter, will be able to:
• Describe the purpose of an insurance policy, including risk categories, and the importance of professionals to carry professional liability insurance.
• Explain the elements and conditions of an insurance policy.
• Describe the investigation and settlement of claims.
This chapter introduces the reader to some of the basic concepts related to professional liability insurance. The purpose of liability insurance is to spread the risk of economic loss among members of a group who share common risks (for example, an obstetrician would share risk with other obstetricians). As risks increase, premiums increase to cover the associated risks. The premiums are placed in a shared risk fund from which monies are drawn to cover the costs of lawsuits. Because of skyrocketing malpractice premiums, some physicians limit their practice to less costly procedures, restrict their practices by not accepting new patients, decide to close their practice, or accept a position as an employee in a hospital setting.
Medical malpractice insurance is subject to the cyclical nature of the insurance market. Problems intrinsic in malpractice insurance include the uncertainty of the U.S. legal system, inflation, damages awarded, emerging technology, and high-risk procedures.
23.1 INSURANCE POLICIES
Insurance is a contract that creates legal obligations on the part of both the insured and the insurer. It is a contract in which the insurer agrees to assume certain risks of the insured for consideration or payment of a premium. Under the terms of the contract, also known as the insurance policy, the insurer promises to pay a specific amount of money if a specified event takes place. An insurance policy contains three necessary elements: (1) identification of the risk covered, (2) the specific amount payable, and (3) the specified occurrence.
Insurance companies are required by the laws of the different states to issue only policies that contain certain mandated provisions and to maintain certain financial reserves to guarantee to policyholders that their expectations will be met when coverage is needed. The basic underlying concept of insurance is the spreading of risk. By writing coverage for a large enough pool of individuals, the company has determined actuarially that a certain number of claims will arise within that pool, and if the premium structure has been established correctly and the prediction of claims made accurately, the company ought to be able to meet those claims and return a profit to its shareholders.
Risk Categories
A risk is the possibility that a financial loss will occur. The main function of insurance is to provide security against this loss. Insurance does not prevent or hinder the occurrence of the loss, but it does compensate for the damages.
An insured individual may be exposed to three categories of risk:
1. Property loss or damage: the possibility that an insured’s property may be damaged or destroyed by fire, flood, tornado, hurricane, or other catastrophe.
2. Personal injury: the possibility that the insured may be injured in an accident or may become ill; the possibility of death is a personal risk covered in the typical life insurance plan.
3. Legal liability risk: the possibility that the insured may become legally liable to pay money damages to another and includes accident and professional liability insurance.
Insurance Policies
Insurance policies include occurrence policies, which cover all incidents that arise during a policy year, regardless of when they are reported to the insurer; and claims-made policies, which cover only those claims made or reported during the policy year. Tail coverage policies provide for an uninterrupted extension of an insurance policy period. Umbrella policies cover awards over the amount provided in the basic policy coverage. The dollar amount of coverage is specified in the policy.
23.2 LIABILITY OF THE PROFESSIONAL
An individual who provides professional services to another person may be legally responsible for any harm the person suffers as a result of negligence. Many professionals protect themselves from their exposure to a legal loss by acquiring a professional liability insurance policy.
| $44M Paid in Nurse Practitioner Liability Claims Over Past 5 Years: Report |
According to the “Nurse Practitioner 2012 Liability Update: A Three-part Approach,” the average malpractice indemnity payment (judgments and settlements) for the five-year study period has increased 19 percent since the 2009 NSO/CNA nurse practitioner claims analysis, rising from $186,282 to $221,852. The average cost to defend a lawsuit also rose to $63,792.
—Claims Journal, November 27, 20122
All Professionals Need Insurance
All healthcare professionals should carry malpractice insurance. Even though a hospital, for example, as an employer can be held liable for the acts of its employees under the doctrine of respondeat superior, the employee can be financially liable to the employer for his or her own negligent acts. From a cost–benefit standpoint, the answer to the question, “Do I really need insurance?” is yes. Insurance premiums for allied health professionals are relatively reasonable.
Malpractice insurance coverage is especially important if a caregiver is working:
• As a volunteer at a clinic or health fair not sponsored by his or her employer
• As an independent contractor providing a service in a patient’s home
• For an independent agency or registry
• For an organization that is covered by an insurance policy that has an exclusionary provision by which the insurance company disclaims liability for malpractice actions brought against the insured organization
If a private agency has inadequate insurance coverage, there is always a possibility that recovery will be sought against a nurse’s estate.
There are disadvantages to nurses obtaining malpractice insurance. First, acquisition of malpractice coverage by nurses could encourage naming nurses as defendants in malpractice suits. Second, an increase in complaints against nurses could cause an increase in insurance premiums, eventually placing the cost of malpractice insurance outside their financial means.
Advanced Practice Nurse Practitioner
Nurse practitioners are experiencing, on average, a 2.3% increase on indemnity and expense payments. This is due in part to the expanding roles of nurse practitioners as they take on various responsibilities that have historically been performed by physicians. Claims often involve, as with physicians, the failure to properly assess and diagnose patients.3
Registered Nurse
Registered nurses, as well as advanced practice nurse practitioners, continue to evolve as they perform additional responsibilities. A nurse’s insurance policy was primary with respect to the first $100,000 of a settlement that resulted from a malpractice action against the nurse in American Nurses Association v. Passaic General Hospital.4 The National Fire Insurance Company had issued an insurance policy covering the contractual obligation of the American Nurses Association to its members. The New Jersey Supreme Court held that the judgment against the nurse in excess of $100,000 was properly apportioned equally between the hospital’s liability insurer and the association’s liability insurer.
The court in Jones v. Medox, Inc.5 held that only the nurse’s insurance carrier, Globe Insurance, was liable for injuries sustained by the plaintiff while at Doctors Hospital; these injuries resulted from an injection administered by the nurse. Medox, Inc., a corporation providing temporary medical personnel to Doctors Hospital, employed Ms. Jones. After settlement of the claim against the nurse, the hospital, and the nurse’s employer, the nurse and her insurer brought an action against Doctors Hospital, Medox, Inc., and their insurers. The trial court granted summary judgment in favor of the hospital and its insurer and dismissed the claim against Medox, Inc., and its insurer.
Private Duty Nurse
A private duty nurse is not considered an employee but rather is engaged by the patient (or the patient’s family) to provide services to that patient. As such, the nurse should obtain personal coverage. The patient engaging the nurse would be well advised to ask about the availability of such coverage, as would the institution in which the nurse is providing professional care for that patient.
Even though a patient employs a special duty nurse, an organization can be liable for damages resulting from a nurse’s negligent conduct. The existence of an employer–employee relationship, which determines the applicability of respondeat superior, is a matter to be determined by the jury.
An organization can also be liable for damages awarded in a malpractice action if a nurse and his or her registry have inadequate insurance to cover a jury award. In such instances, an organization then would have a right to seek recovery from the nurse and the registry.
Students
The potential for liability is not limited to licensed professionals. Students engaged in learning a profession who engage in activities involving the care and treatment of others face potential liability for their acts. For this reason, these individuals often obtain personal insurance coverage or assure themselves of such coverage through the organization in which they are employed or the educational institution in which they are enrolled.
23.3 THE INSURANCE AGREEMENT
Healthcare organizations, nurses, physicians, and other healthcare practitioners who are covered by an insurance policy must recognize the rights and duties inherent in the policy. The professional being insured should be able to identify the risks that are covered, the amount of coverage, and the conditions of the contract.
Although the policies of different insurance companies may vary, the standard policy usually provides that the insurance company will pay on behalf of the insured all sums that the insured shall become legally obligated to pay as damages because of injury arising out of malpractice error, as well as mistakes in rendering or failing to render professional services.
The insurer, under the terms of an insurance policy, has a legal obligation to pay the sum that has been agreed to or determined by a court, up to the policy limit, including legal fees. Under a professional liability policy, the professional is protected from damages arising from rendering or failing to render professional services. Thus, a professional who performs a negligent act resulting in legal liability or who fails to perform a necessary act (thereby incurring damages) is personally protected from paying an injured party. The insurer makes payment of damages to the injured party.
Defense and Settlement
In the defense and settlement portion of the insurance policy, the insured and the insurance company agree that the company will defend any lawsuit against the insured arising from performance or nonperformance of professional services. The insurance company is delegated the power to effect a settlement of any claims as it deems necessary. In a professional liability policy, the duty of the insurer under this clause is limited to the defense of lawsuits against the insured that are a consequence of professional services.
The insurance company fulfills its obligation to provide a defense by engaging the services of an attorney on behalf of the insured. The obligation of the attorney is to the insured directly, because the insured is the attorney’s client. There is, to some extent, a divided loyalty because the attorney looks to the insurance company to obtain business. Nevertheless, the attorney–client relationship exists between only the attorney and the insured, and the insured has the right to expect the attorney to fulfill the requirements of such a relationship.
Settlements and Awards
Because of the costs of proceeding to trial, both the plaintiff’s lawyer and the defendant’s insurer often settle out of court. Two types of awards are offered: direct compensation for medical bills, expenses, and lost wages; and compensation for pain and suffering for noneconomic losses and, in rare cases, punitive damages for grossly negligent conduct or behavior. If an insurance company has established the right to obtain a settlement of any claim prior to trial, the company’s only obligation is to act reasonably and not to the detriment of the insured.
Policy Period
The period of the policy is stated in the insurance contract. Under an occurrence policy, the contract provides protection only for claims that occur during the time frame within which the policy is stated to be in effect. Any incident that occurs before or after the policy period would not be covered under the insuring agreement. Occurrence policies provide coverage for all claims that may arise out of a policy period. The actual reporting time has no bearing on the validity of the claim, so long as it is filed before the applicable statute of limitations tolls. Although the reporting time has no bearing on the validity of the claim from the standpoint of coverage under the policy, the conditions of the policy will require notice within a specified time. Failure to provide such notice could void the insurer’s obligation under the policy if it can be demonstrated that the carrier’s position was compromised as a result of filing an untimely claim or report.
A claims-made policy provides coverage for only those claims instituted during the policy period. Notice of a claim is required during the policy period. Failure to give notice of a claim to the insurer in a claims-made policy until after the policy expires can result in denial by the insurance company to cover the claim.
Coverage: Amount Payable
The amount to be paid by an insurer is determined by the amount of damages incurred by the injured party. The insurance company and the injured party may negotiate a settlement prior to or during trial. Some states have provisions mandating that consent of the court must be obtained prior to the settlement of a negligence claim on behalf of a minor.
In any event, the insurance company will pay the injured party no more than the maximum limit stated in the insurance policy. The insured professional must personally pay any damages that exceed the policy limits. For example, under a policy with a maximum coverage of $1 million for each claim and $3 million for aggregate claims (the total amount payable to all injured parties), the insured must pay any amount over $1 million on each individual claim and any amount over $3 million in a policy period.
Punitive Damages
A claim for punitive damages awarded in a malpractice suit was submitted to an insurance carrier for payment but was subsequently denied by the carrier.6 The insurance carrier cited Florida public policy, which prohibits coverage of punitive damage awards.
23.4 INTENTIONAL TORTS: COVERAGE DENIED
An insurer has no duty to defend or provide coverage for intentional torts. Contracts insuring against loss from intentional wrongs are generally void as being against public policy.
No Duty to Cover Intentional Torts
An action was brought by a comprehensive liability insurer for declaratory judgment as to its duty to defend the insured in civil actions alleging slander, interference with business relations, and violations of the federal antitrust laws in St. Paul Insurance Co. v. Talladega Nursing Home.7 The federal district court ruled for the insurer, and the nursing facility appealed. The Fifth Circuit held that the insurer has no duty to defend or provide coverage for alleged intentional torts. Under Alabama law, all contracts insuring against loss from intentional wrongs are void as being against public policy.
Therapist’s Sexual Affair with Patient
A therapist’s sexual affair with a patient was not covered by the provider’s liability insurance in Scottsdale Ins. Co. v. Flowers.8 The district court was found not to have abused its discretion in exercising jurisdiction over a patient’s emotional distress action arising out of the therapist’s sexual affair with the patient. The court properly ruled that the therapist, an employee of the insured mental health services provider, was not covered by the provider’s liability insurance policy for tort damages arising from the sexual affair. The conduct in question was outside the scope of the therapist’s employment and thus outside tort liability coverage of the liability insurance policy of the therapist’s employer, which included only employees’ acts within the “scope of their employment.”
Sexual Assault
Sexual assault does not constitute rendering professional services within the coverage provisions of insurance policies. As a result, malpractice insurers are not required to indemnify the insured for liability resulting from the sexual assault. The Medical Protective Company, in R.W. v. Schrein,9 a physician’s professional liability insurer, sought a judgment determining that it had no duty to defend or indemnify the physician with respect to five former patients who claimed that they were sexually abused during examination and treatment. The Supreme Court of Nebraska held that there is no clearly articulated public policy that would permit or require the court to disregard the fact that the physician’s acts did not fall within the coverage provided. The physician’s liability to the appellants was not based on the provision or failure to provide professional services.
There was no duty by the malpractice insurer in Sanzi v. Shetty 10 to defend the pediatric neurologist who allegedly sexually abused a patient for a period of 8 years, beginning when she was just 14 years old. It was asserted that such abuse led to the patient’s suicide approximately 12 years after the neurologist ended his relationship with the patient. It was alleged that the neurologist had deceived the patient’s parents into believing that it would be beneficial to the patient to spend Saturdays working in his office, where he allegedly sexually abused the patient during regular medical visits and on the purported Saturday workdays. A hearing justice found that the malpractice insurer had no duty to defend or indemnify the neurologist. The state supreme court held that because the claim against the doctor did not allege injury arising from the rendering or failure to render professional services, it was not covered by the policy. The only connection between the doctor’s acts and his profession was that the sexual abuse of the deceased occurred at his office while she worked there. Because the alleged sexual abuse carried with it an inferred intent to harm, there was no accidental nature to the resulting injuries. Consequently, the insurer was relieved from its duty to defend or indemnify the insured physician.
23.5 CONDITIONS OF INSURANCE POLICIES
Each insurance policy contains a number of important conditions. Failure to comply with these conditions may cause forfeiture of the policy and nonpayment of claims against it. Generally, insurance policies contain the following conditions:
1. Notice of occurrence—When the insured becomes aware that an injury has occurred as a result of acts covered under the contract, the insured must notify the insurance company promptly. The form of notice may be either oral or written, as specified in the policy.
2. Notice of claim—Whenever the insured receives notice that a claim or suit is being instituted, prompt notice must be sent by the insured to the insurance company. This provides the insurance company with an opportunity to investigate the facts of a case. The policy will specify what papers are to be forwarded to the company. The mere failure to advise in a timely manner may be in and of itself a breach of the insurance contract, entitling the insurer to decline coverage. It may not matter that the insurer has in no way been prejudiced by the late notification—the mere fact that the insured failed to carry out obligations under the policy may be sufficient to permit the insurer to avoid its obligations. When the insurer has refused to honor a claim because of late notice and the insured wishes to challenge such refusal, an action can be brought, asking a court to determine the reasonableness of the insurer’s position.
3. Assistance of the insured—The insured must cooperate with the insurance company and render any assistance necessary to reach a settlement.
4. Other insurance—If the insured has pertinent insurance policies with other insurance companies, the insured must notify the insurance company so that each company may pay the appropriate amount of the claim.
5. Assignment—The protections contracted for by the insured may not be transferred unless the insurance company grants permission. Because the insurance company was aware of the risks the insured would encounter before the policy was issued, the company will endeavor to avoid protecting persons other than the policyholder.
6. Subrogation—This is the right of a person who pays another’s debt to be substituted for all rights in relation to the debt. When an insurance company makes a payment for the insured under the terms of the policy, the company becomes the beneficiary of all the rights of recovery the insured has against any other persons who also may have been negligent. For example, if several nurses were found liable for negligence arising from the same occurrence and the insurance company for one nurse pays the entire claim, the company will be entitled to the rights of that nurse and may collect a proportionate share of the claim from the other nurses.
7. Changes—The insured cannot make changes in the policy without the written consent of the insurance company. Thus, an agent of the insurance company ordinarily cannot modify or remove any condition of the liability contract. Only the insurance company, by written authorization, may permit a condition to be altered or removed.
8. Cancellation—A cancellation clause spells out the conditions and procedures necessary for the insured or the insurer to cancel the liability policy. Written notice usually is required. The insured person’s failure to comply with any terms of the policy can result in cancellation and possible nonpayment of a claim by the insurance company. As a legal contract, failure to meet the terms and conditions of an insurance policy can result in a breach of contract and voidance of coverage.
23.6 MEDICAL LIABILITY INSURANCE
The fundamental tenets of insurance law and their application to the typical liability insurance policy are pertinent to the provisions of medical professional liability insurance as applied to individuals and institutions. Professional liability policies vary in the broadness, the exclusions from coverage, and the interpretations a company places on the language of the contract.
There are three medical professional liability classes:
1. Individuals, including (but not limited to) physicians, surgeons, dentists, nurses, osteopaths, chiropractors, opticians, physiotherapists, optometrists, and different types of medical technicians (This category may include medical laboratories and blood banks.)
2. Healthcare institutions, such as hospitals, extended-care facilities, homes for the aged, institutions for the mentally ill, and other healthcare facilities where bed and board are provided for patients or residents
3. Outpatient facilities and clinics where there are no regular bed or board facilities (These institutions may be related to industrial or commercial enterprises; however, they are to be distinguished from facilities operated by dentists or physicians, which usually are covered under individual professional liability contracts.)
The insuring clause usually will provide for payment on behalf of the insured if an injury arises from either of the following:
• Malpractice, error, or mistake in rendering or failing to render professional services in the practice of the insured’s profession during the policy period
• Acts or omissions on the part of the insured during the policy period as a member of a formal accreditation or similar professional board or committee of a healthcare facility or a professional society
Although injury is not limited to bodily injury or property damage, it must result from malpractice, error, mistake, or failure to perform acts that should have been performed.
The most common risks covered by medical professional liability insurance are as follows:
• Negligence
• Assault and battery as a result of failing to obtain consent to a medical or surgical procedure
• Libel and slander
• Invasion of privacy for betrayal of professional confidences
Coverage may vary from company to company, but standards of policy coverage generally are followed. Rates will differ for individuals by profession and specialty and by type of healthcare facility (e.g., nursing facility or hospital).
23.7 SELF-INSURANCE
Exorbitant malpractice insurance premiums often have produced situations in which the premium cost of insurance has approached and, on occasion, reached the face amount of the policy. Because of the extremely high cost of maintaining such insurance, some institutions have sought alternatives to this conventional means of protecting against medical malpractice. One alternative is self-insurance. When a healthcare facility self-insures its malpractice risks, it no longer purchases a policy of malpractice insurance but instead periodically sets aside a certain amount of its own funds as a reserve against malpractice losses and expenses. An institution that self-insures generally retains the services of a self-insurance consulting firm and of an actuary to determine the proper level of funding that the institution should maintain.
A self-insurance program need not involve the elimination of insurance coverage in its entirety. A healthcare organization may find it prudent to purchase excess coverage whereby the organization self-insures the first agreed-on dollar amount of risk and the insurance carrier insures the balance. For example, in a typical program, the organization may self-insure the first $1 million of professional liability risk per year. Because most claims will be disposed of within such limitation, the cost of excess insurance may be quite reasonable.
Before a corporation makes a decision to self-insure, not only must it determine the economic aspects of such a decision and the necessary funding levels to maintain an adequate reserve for future claims, but it also must determine whether there are any legal impediments to such a program. A corporation that has obtained funding from governmental sources or that has issued bonds or other obligations containing certain covenants may find itself unable to self-insure because of these prior commitments. Healthcare organizations should consult legal counsel to review appropriate and applicable documentation before making the self-insurance decision.
23.8 TRUSTEE COVERAGE
Trustees should be covered by liability insurance just as are physicians and other healthcare professionals. Such coverage is generally provided for by the organization and is helpful in attracting qualified board members. Before an insurer writing a trustee policy (generally known as directors’ and officers’ liability insurance) will respond to defend or pay a claim on behalf of a trustee, it must be shown that the trustee acted in good faith and within the scope of his or her responsibilities. Ordinarily, coverage would not be afforded when a trustee is accused of acting improperly in his or her relationship with the corporation. In addition, insurance coverage for officers’ and directors’ liability generally excludes, as a covered event, the failure to obtain other necessary insurance for the institution (e.g., fire insurance).
Insurance coverage for officers and directors of a corporation should include indemnification, to the extent possible by law, for all liabilities and expenses including:
• Counsel fees and expenses that are reasonably incurred as the result of any legal proceeding stemming from lawsuits that might arise in connection with an officer’s or director’s position with the corporation
• Funds paid in satisfaction of judgments
• Fines and penalties
• Coverage that extends to actions taken while in office or thereafter, by reason of being or having been a director or officer of the corporation, excepting when the officer or director has not acted in good faith or when there is reasonable belief that an officer’s or director’s action was not in the best interest of the corporation
23.9 MANDATED MEDICAL STAFF INSURANCE COVERAGE
Physicians are often required by healthcare organizations to carry their own malpractice insurance. Physicians who fail to maintain such coverage can be suspended from a hospital’s medical staff.
Right to Suspend Physician
A federal district court in Pollack v. Methodist Hospital 11 ruled that a hospital has the legal right to suspend a staff physician for failing to comply with its requirement that physicians carry medical malpractice insurance coverage. The decision resulted from a suit brought against a hospital by a physician whose staff privileges were suspended because he failed to comply with a newly adopted hospital requirement that all staff physicians provide proof of malpractice coverage of at least $1 million. The court rejected the physician’s charges that the requirement violated his civil rights and antitrust laws.
As held in Wilkinson v. Madera Community Hospital,12 a healthcare organization can require its medical staff to show evidence of professional liability insurance. The physician in this case was refused reappointment because he failed to maintain malpractice insurance with a recognized insurance company as required by the hospital.
23.10 INVESTIGATION AND SETTLEMENT OF CLAIMS
An injured party may request settlement of a claim prior to instituting legal action. As a first step toward settlement of a claim, the insurance carrier may have an investigator interview a claimant regarding the details of the alleged occurrence that led to the injury. After an investigation, the insurance company may agree to a settlement if liability is questionable and the risks of proceeding to trial are too great. Should settlement negotiations fail, an attorney may be employed by the injured party to negotiate a settlement. If the attorney fails to obtain a settlement, either the claim can be dropped or legal action commenced.
When a claim is settled, a general release, signed by the plaintiff, surrenders the right of action against the defendant. If the claimant is married, a general release should also be obtained from the spouse because there may be a cause of action as a result of loss of the injured spouse’s services (e.g., companionship). A parent’s release surrenders only a parental claim. Approval of a court may be necessary to release a child’s claim. A minor, upon reaching majority, may repudiate a release in some instances. A general release can be voided if the releasee:
• Is intoxicated, under the influence of drugs, in shock, or in extreme pain that prevents sufficient understanding of a general release and therefore prevents or voids its execution
• Does not understand the language of the release
• Has not had the opportunity to obtain appropriate legal consultation
• Has been the victim of mental or physical duress
• Has executed the release as a result of misrepresentation or fraud
• Is mentally incompetent and cannot give a valid release (In this instance, a court-appointed guardian is required to execute a release on behalf of a mental incompetent, and a court must pass on the terms of any settlement.)
| The Court’s Decision |
Sexual assault did not constitute rendering professional services within coverage provisions of the physician’s insurance policy. The New Mexico Supreme Court held that the malpractice insurer was not required to indemnify a physician for liability resulting from the sexual assault of a minor. The physician’s conviction was admitted into evidence not to prove negligence but to prove that the physician’s misconduct constituted criminal acts within exclusions of liability policies.
CHAPTER REVIEW
1. Medical malpractice insurance is affected by the cyclical nature of the insurance market.
2. Insurance is a contract in which the company providing the insurance agrees to assume some of the risks of the insured party for consideration or the payment of a premium. There are three primary components of an insurance policy:
• Identification of the covered risks
• Specification of the amounts payable
• Specification of the occurrence
3. By creating a large pool of individuals, an insurance company can balance its risk—the possibility that loss will occur—enough that it should be able to both cover claims and return a profit to shareholders.
4. There are three primary categories of risk:
• Property loss
• Personal
• Legal liability
5. Occurrence policies cover all accidents during a policy year, regardless of when they are reported, whereas claims-made policies cover claims made or reported during the policy year, no matter when they occurred.
6. Healthcare professionals are encouraged to obtain malpractice insurance because they can be held liable for their own negligence.
• Drawbacks include the encouragement of being named in malpractice suits.
7. Standard liability policies have five distinct parts:
• Insurance agreement
• Defense and settlement
• Policy period
• Amount by the insurance company
• Policy conditions
◦ If the insured does not comply with these conditions, forfeiture of the policy and nonpayment of claims against it could result.
8. Professional liability insurance covers:
• Negligence
• Assault and battery that result from failing to obtain consent to a medical or surgical procedure
9. Conditions of an insurance policy:
• Notice of occurrence
• Notice of claim
• Assistance of the insured
• Other insurance
• Assignment
• Subrogation
• Cancellation
10. Professional liability does not cover:
• Intentional torts
• Sexual assault
11. Self-insurance is a practice in which a healthcare organization periodically sets aside a certain amount of money to cover malpractice losses and expenses.
12. Trustees should be covered by liability insurance.
13. An injured party may request settlement of a claim prior to instituting legal action.
14. When a claim is settled, the plaintiff signs a general release, which states that the plaintiff surrenders the right of action against the defendant.
REVIEW QUESTIONS