A commonly overlooked area of risk management in physician’s business and asset-protection planning is the need for D&O insurance.
A commonly overlooked area of risk management in physician’s business and asset-protection planning is the need for “Directors and Officers” coverage, commonly referred to as D&O insurance. In previous articles we have covered a variety of essential life, disability and liability insurance strategies, always the first line of defense. This week we examine the increasing risks faced by doctors in their expanding roles as business leaders, owners and executives.
D&O coverage is often confused with a variety of other forms of coverage with similar sounding acronyms and is often overlooked by doctors and insurance agents alike. I consistently find that doctors who have been advised on a full suite of liability products by their local property and casualty insurance guru have no idea that D&O is even available or that it is distinct from their general liability, malpractice and E&O coverage.
As one example, I was recently referred a client that is the owner and president of a multi-state business that does $15 million a year in annual revenue. The business has a variety of regulatory requirements and, because it is being closely held and managed by my client, my client would certainly face directly personal liability for decisions, acts, and omissions he made in his executive capacity.
I asked him to contact his insurance agent and get quotes on D&O insurance adequate for his liability level and was shocked when the client called me back and said that his agent had informed him that, “You can’t get D&O coverage unless you are on the board of an HOA or a big corporation.”
Not only was the agent just plain wrong, he was too lazy to do a little research and make a sale to a client that actually needed help. To confirm I checked with liability insurance pro Dallas Cowan at Minard-Ames Insurance in Phoenix. Dallas was shocked, and confirmed that the insurance was available and that it was extremely important for owner/operators who don’t have the more diffuse liability found in the broader, deeper management structures of larger public or private corporations with multiple layers of management and a system of checks and balances under a board of directors. Put simply, fewer people in the executive chain means more blame for each person on wider range of issues, including up to the level of criminal liability even if the acts are committed without the executive’s direct knowledge or permission.
Getting the right policy for your role as a physician entrepreneur and executive involves having an expert agent that can explain the different types of coverage available under an E&O policy and what each one does. Policies are different and have different features and pricing. Dallas explained that the primary types of coverage include:
• Side A - for the officers and directors themselves
• Side B - for the corporation if it is required to indemnify
• Side C - for security claims
The scope of the liability for doctors is wider than most realize. You have all of the conventional medical practice related issues such as HIPAA compliance, Medicare and Medicaid billing regulations, and of course the policies and procedures related to care delivery itself. Add to that responsibility for issues ranging from waste disposal and employment policies to accounting and tax reporting and you begin to see the tip of the iceberg we are trying to avoid and protect you against.
This exposure applies not just to medical practices and related businesses like labs and medical supply, research and medical device and technology companies but also to a variety of other businesses that seek to include doctors on their boards and executive management teams for their knowledge, prestige and connections. Realize this liability extends beyond the business world into service on private foundations, charitable boards, and even boards of religious institutions; I’ve recently seen lawsuits against people on the boards of churches, synagogues, and mosques as well.
What does all this cost? It depends. Like nearly every other form of insurance it is underwriting specific and is based on your previous record, lawsuits and the policies and procedures you have in place to minimize the likelihood of an exposure and an insurance claim in the first place. That said, in one recent internal lawsuit in a business without D&O insurance in place the legal defense bills exceeded $250K paid out of pocket by the principals; the insurance would have been pennies on the dollar of that amount.