Most medical professionals have an awareness of their target value and the threat that their professional liability poses to their wealth. A pattern of less-obvious, but serious and repeated, exposures has emerged among the thousands of physicians my associates and I work with all over the United States. Here are some of the most serious ones:
1. Exposure on Real Estate: Whether through over-extending on the purchase of a luxury home or vacation home or in a traditional development deal, many medical professionals have seen first-hand the effects of personal guarantees being enforced. In many cases, the guarantee agreements were poorly drafted and did not limit the exposure of the investors to a proportionate share but made them jointly and severally liable. What this means in the real world is that the 10 percent owner of an R.E. development LLC or any other business venture that goes belly up can be held fully liable for all of the loan, not just “their” share. If they happen to be the only one of the partners that’s collectible, the result can be financially fatal.
SOLUTION: Limit the personal guarantee to your proportional contribution or ownership in the property. Have planning in place that segregates collectible assets from your personal liability and always have legal counsel review these agreements.
2. Vicarious Liability for Employees: We continue to see an increased level of exposure for the actions of employees. As HIPAA and other compliance issues become increasingly onerous and as medical offices handle a greater load of sensitive financial information, the risk of employee misuse (intentional) or sloppy mishandling (either way, the boss owns the liability) of that information and the resulting lawsuits have become more common and dangerous.
SOLUTION: Have clear and enforceable policies in place for employee data-handling procedures and misconduct and invest some time and money in your physical and information security systems. Make sure you have liability coverage that covers data breach and employee actions to seven figure dollar limits. There is a wide variety of technical assistance out there specifically designed to protect you from these issues.
3. Home and Family Liability: One common situation we see is American families with children who drive have vehicles owned by mom and dad with the car insured on a family policy. The economic necessity of doing it this way is clear; it’s just too expensive to insure a 16 year old on his or her own policy. But the liability above and beyond the policy limits are always going to be attributed to the parents. The same is true of those of you and/or your spouse who have personal vehicles leased or purchased by your business, often at the advice of your CPA. You are taking the high risk of driving a vehicle in traffic daily, and perhaps your spouse’s liability as well, and dragging it into your practice. The business now “owns” any accident that may happen and is an exciting target to an attorney, even more exciting than you personally.
SOLUTION: Don’t lease or purchase vehicles in the name of your business. Instead, hold it personally and take a car allowance. Buy every dollar of insurance you can afford on your homes and cars (have your kids ever thrown a party while you were out?) and maintain an umbrella that is a first line of defense of your asset-protection plan. Be a hard target and get assets into structures where they are safe from these and other personal and professional liability exposures.
4. Investment and Tax Planning Fraud: A variety of promoters of poorly designed or intentionally fraudulent plans target doctors because they know that you have money and that you are sensitive to taxation issues. A good portion of this fraud is “affinity fraud” meaning that it is marketed to you by people you know personally or socially, or sometimes innocently by a colleague who has been taken as well and wants to help you by sharing the “secret” plan she found. These crooks also know that you are looking for ways to regain lost ground in your investment loses and have a variety of schemes that sound good and promise impossible-sounding returns. And that’s often because they are impossible.
SOLUTION: Have a team that includes investment, legal, and tax counsel to bounce issues off. Refuse to do business without their input; any real deal will typically allow and encourage this.
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