[Credit: Norcal Mutual Insurance Company's Winter 2010 Broker Report]

Are all medical professional liability insurers the same? Or is there a value difference?

The first thing to consider is service. Experienced brokers know too well that service standards can vary wildly from one insurer to the next. And “service standards” covers a lot of ground, from how long it takes to reach the “right” staff member on the phone to how long it takes that staff person to solve your problem in a clear, friendly, efficient way.

Service includes how well your client’s claims representative supports the client during the course of a case. In a recent letter to NORCAL Mutual, a policyholder described the value difference:

“I want to thank NORCAL and my claims representative for providing excellent claims handling during my recent case. The rep was instrumental in making the claim much easier to tolerate and understand. His selection of the defense attorneys was clearly correct. I am completely satisfied with all aspects of my case.”

Another policyholder wrote, “Always great service! The underwriters are great, the turnaround time is excellent. I continue to feel NORCAL has lived up to its commitment to me.”

The value difference can be measured in many ways:

● NORCAL Mutual doesn’t cap defense costs. After all, is there a cap on the value of a physician’s practice? The policyholder enjoys uncapped defense costs in addition to policy limits, to preserve full coverage for potential indemnity payments.
● We look at whether the standard of care was met, rather than terminate a policy after a couple of indemnity payments have been made.
● To ensure that policyholders enjoy claims-based continuing medical education (CME) that is relevant to patient safety and the reduction of risk, our staff of highly experienced specialists write and develop online and print CME materials, as well as providing onsite risk management consultation and 24/7 phone support.
● Some insurers operate from remote corporate headquarters. NORCAL keeps it as local as possible, with offices in San Francisco and Pasadena, CA, Anchorage, AK and Providence, RI. Furthermore, our Account Executives travel widely and constantly to bring personal attention to our policyholders.
● We know that insurance needs vary greatly among solo practitioners, small groups, large groups, hospitals, and community clinics. So we have specialized expertise in each market sector.

At NORCAL Mutual we aspire to provide unparalleled value to you and your clients. Exemplary service is the norm. There is an expectation of all staff that they will provide great service—an expectation supported by training and company culture.

HCP National Insurance is a national medical malpractice and medical professional liability broker appointed by Norcal. HCP National’s Medical Malpractice Insurance brokerage is located in Orange County, CA.

Changes to EPLI Employment Practices Liability Insurance California LA Labor & Wage Violations Report

Employment Practice Liability Insurance (EPL) provides protection for an employer against employee claims, former employee claims, or claims made by potential employees based on discrimination, wrongful termination, harassment, and other allegations. If you are a California employer, you should know that labor and wage violations are higher in Los Angeles, CA than in any other major cities nationally. You should also know that getting insurance to protect your company or firm may soon be much more difficult.

Today’s EPL policy may no longer be available in Southern California, as well as other regions. This news follows the disturbing report issued by UCLA’s Institute for Research on Labor and Employment that found a shocking “9 out of 10 workers in Los Angeles County experienced wage theft and 80 percent did not receive legally mandated overtime”. The same report showed that “Los Angeles workers were more likely to suffer wage and labor violations than those in New York or Chicago”.

In light of this report, it is expected that many insurers will take aggressive steps to reduce their exposure in Southern California or risk an avalanche of losses. Failure to protect themselves would force insurers to face complete withdrawal from this essential venue.

• The first signs of restriction will be the elimination of Wage and Hourly coverage; a key coverage enhancement available in most policies that provides coverage for the very violations noted above.

• Expect the “Full Prior Acts” coverage term to be replaced by a strict Retro Date Inception (RDI) for first time policyholders, as insurers will look to favor their current policyholders over the “late comers”.

• New applicants for coverage will be forced to deal with stringent underwriting standards and may not be able to secure coverage at any cost (much like homeowners trying to re-finance their mortgage).

• Immediately following a series of coverage/underwriting restrictions, increases in retentions and premiums are sure to follow.

The bottom line is this: the signals for an extremely difficult EPL market are out there and firms that do not secure coverage IMMEDIATELY may be left out in the cold when they need the coverage the most. Since EPL is tied closely with Directors and Officers Liability, the impact on the EPL coverage line will undoubtedly affect D and O as well. So if you do not secure these coverages in the next 60 days, your options will not resemble what they could have today.

HCP National Insurance is an EPLI (Employment practices brokerage) company, who works with Rubicon Insurance Services – our affiliate and author of this blog. HCP National Insurance is not a law firm, but an Employment Practices Liability Insurance, Directors and Omissions, and Errors and Omissions insurance brokerage whose home office is in Aliso Viejo, CA.

NOTE THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW COVERAGES MAY WORK. YOUR INSURANCE POLICY AND ALL ADDENDUM ARE THE ONLY AUTHORITY OF HOW YOUR COVERAGE WORKS. DO NOT RELY ON THIS ARTICLE AS AN EXPLANATION OF YOUR COVERAGE. HAVE YOUR ATTORNEY REVIEW YOUR ENTIRE POLICY WITH YOU TO DETERMINE WHAT IS AND ISN’T COVERED.

[Credit: Molly L. Farrell, NORCAL Mutual Insurance Company]

Dear NORCAL Mutual Broker:

We at NORCAL Mutual Insurance Company extend our sympathies to the people and government of Haiti at this difficult time. As part of the growing worldwide relief effort, we are eager to support and extend coverage to policyholders who wish to travel to Haiti to provide volunteer charitable medical services.

We ask that you help us communicate this message to any of your NORCAL Mutual clients who may be planning to travel to Haiti to aid in relief efforts.

We will provide coverage for claims that are instituted in the U.S., its territories and possessions, and Puerto Rico or Canada. Also, we will extend coverage for endorsed healthcare extenders with the policyholder’s consent, limited to services rendered within their scope of training.

For additional details, please contact NORCAL Mutual Policyholder Services at (877) 443-7232.

Molly L. Farrell
Vice President, Sales

HCP National is a national medical malpractice broker appointed by Norcal. HCP National’s Medical Malpractice Insurance brokerage is located in Orange County, CA.

If you are a private, public, or even a public entity, and you have a website, then you need E and O and D and O, and Tech and Privacy Breach E and O insurance. E and O insurance (Errors and Omissions Insurance) covers the service that you provide and the representations that your employees make to your customers. D and O ( Directors and Officers Insurance) protects the officers and directors as they conduct the affairs of the business. Tech and Privacy E and O covers the things you say and do on your website, and also if you have a computer security breach and clients or employee’s confidential information is stolen. Also, if you are a technology company and your technology harms another (viruses, lack of data breach protection, your system malfunctions and the client is harmed financially), Tech and Privacy E and O insurance will cover your company.

D and O (Directors and Officers Insurance) coverage protects your board members, who make decisions about the direction of the company. It also protects the manager, employees, and officers, who make decisions regarding the operation or direction of the company. Lastly, the company, the entity itself, as it is named in a suit for these types of actions is also covered.

Here are some example claims:
1. A director has a friend in the carpet business and the director recommends that the company buy carpet from his friend. The company spends three times more for what the carpet would normally cost, and the director also received a kick back from his friend. The stockholders sued for wasting company assets, self dealing et al.

2. A sales manager recruits two sales reps from a competitor, and he tells them to take the competitors client lists. The competitor sues for business interference et al.

3. A privately held business is sold, and before the sale, the owner signed a 10 year lease at an above market rental rate. The new buyer comes back and sues for non-disclosure and wasting corporate assets (the seller is only covered if he/she bought prior acts for the D and O insurance).

E and O (Errors and Omissions) – This covers your employees and other representatives for the actions they take as they deliver your product or service. It covers misrepresentations and errors, or lack of disclosure. It excludes fraud or other criminal activities.

Here are some example claims:
1. A sales representative of a technology company sells a $2 million contract and assures the client that it will work with his/her systems. The representative was wrong and the software destroys the client’s legacy systems. The customer sues for the error.

2. A medical supply company sells a new device to a hospital and forgets to let the customer know that the machine will malfunction if it is not grounded. The machine malfunctions and kills a patient. The hospital and the patient sue for wrongful death.

3. An insurance agent tells a client he/she is covered for wind damage in his/her homeowner policy. A big wind storm destroys the client’s home, and his policy clearly excludes wind damage. The agent is sued for the error.

Tech and Privacy Breach E and O insurance is a new area of insurance if you have one or all of the following: a website, client personal information, and/or employees. Anyone with a website accused of harming another’s reputation or posting copyrighted information, needs this coverage in order to be protected from lawsuits. General Liability has coverage for advertising, but it is debatable and therefore it is unlikely that you will find coverage since a website is not considered advertising. If you have Tech and Privacy Breach E and O insurance, you are covered. Also if your computer system is breached and confidential information is breached, Tech and Privacy Breach E and O insurance will cover you. The coverage will also reimburse the cost to inform all those that were breached and defend any suits.

Here are some example claims:
1. A medical group has a laptop stolen with 10,000 patient records on it. The thief sells the patients’ information to others who steal their identities and apply for credit cards in their names. The patients sue the medical group in a class action suit for the damage.

2. A technology company that makes software for airplanes has a virus and it destroys the computer systems of 50 planes. The airline sues for $20 million.

3. A flooring company uses an Elmer Thud cartoon on its website and its web designer assured them that he paid the license fee for its use. The flooring company gets lots of hits and business from its use of the image. The licensor of Elmer finds the site and sues for $1 million for multiple infringements of the copyright.
Every company should have E and O and D and O, and Tech and Privacy Breach E and O insurance. The cost of the insurance is not significant when compared to the risk.

HCP National is an E and O and D and O, and Tech and Privacy Breach E and O insurance brokerage whose home office is in California. This article is not an insurance policy. All questions of insurance coverage are determined by your insurance policy. We are also not a law firm and we do not offer any legal advice.

NOTE THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW COVERAGES MAY WORK. YOUR INSURANCE POLICY AND ALL ADDENDUM ARE THE ONLY AUTHORITY OF HOW YOUR COVERAGE WORKS. DO NOT RELY ON THIS ARTICLE AS AN EXPLANATION OF YOUR COVERAGE. HAVE YOUR ATTORNEY REVIEW YOUR ENTIRE POLICY WITH YOU TO DETERMINE WHAT IS AND ISN’T COVERED.

We encounter some competitors who give our business a bad rep. In general, most insurance brokers work very hard and do the right thing, but some do not. Most brokers earn a 10% (sometimes 15%) commission on the placement of your coverage. That commission is gross revenue for the brokerage. The brokerage then pays its overhead (rent, highly paid employees, and its broker malpractice premiums et al) and that leaves profit, which is not huge.

So if you pay $45,000 for your malpractice insurance coverage, the broker is paid $4500 by the insurance company. I write ‘paid by the insurer,’ since this commission is built into the rates. If you went directly to an insurer to buy your coverage, the insurer would not lower your premium for the broker commission; it’d keep the money even if you have no broker.

The next area of compensation for a broker is fees. An insurance broker has to disclose any fee charged to the client by law as broker fees. You will see fees ranging from $350 to $1000. This is extra compensation that a broker charges to cover his/her overhead. Many brokerages cannot make a profit on premiums below $50K or even $100K depending on the type of service they provide, and the expense of the staff providing those services. The only other fees that you will see that are normal and legitimate are premium taxes and a stamping fee (effective 2/1/10 at 3.225% for CA). This money does not go to the broker, but to the state and the 3rd party company who files the tax, respectively.

We encountered a brokerage who charged 30% of the premiums in fees, and 15% in commission so its total compensation was 45%. We will call this broker ABC. It hid these fees in the insurance quote, and called them policy fees, binding fees, underwriting fees et al. This is not ethical, since all these fees should have been called broker fees since that is who these fees are paid to.

If you ever see fees other than a broker fee and premium tax on a quote for your medical malpractice insurance, ask questions. Also if you are financing your premium, make sure you read the fine print on your premium finance quote. Most brokers will arrange financing and will charge a small fee, which slightly increases the interest rate.

But the ABC broker we found, who was charging the 45% compensation was also charging big fees on the financing. So an interest rate that should have been 8% or 9% was in fact 22%, since the broker added another 5% of commission which it buried in the financing. Therefore the total compensation was 50%, unbelievable!

The other sign that you have a non-ethical broker is if he/she pushes you toward a Risk Retention Group or RRG, without offering an “A” rated AM Best insurer. AM Best Rating is an industry rating system for insurance companies, that’s not fool proof but considered good for evaluating the financial strength of medical malpractice insurers. In my opinion, RRG’s are a very legitimate option for malpractice insurance, if the financially rated insurers are unaffordable or they will not cover you for your risk. Brokers like ABC love to recommend RRG’s since it can be cheaper than a normal insurer, because RRG’s do charge for reserves like insurers do in their premium rates. The RRG can often, but not always, charge the members extra premiums later if the claims exceed premiums. This way it does not have to charge for a reserve upfront in the premium and this is why it is cheaper than the normal insurer.

Brokers, like ABC, offer doctors RRG quotes with big savings, and will then add big fees to that cheaper RRG insurance quote. Here are some concerns associated with an RRG, which a broker should explain prior to placing you with one:

• In the event of bankruptcy (RRG’s have a much bigger chance of becoming insolvent than an “A” rated AM Best normal insurer). A judge could order you and all the members of the RRG to pay for the run out of claims of the bankrupt RRG for as long as it takes to pay every claim. This means you may be stuck paying double insurance premiums, your new insurer who replaced the bankrupted RRG, and the bankrupt RRG who you’ve been ordered to fund till it unwinds.
• If you are in an RRG, most of the standard insurers will not take you till you change to an “A” category rated AM Best insurance company.
• Some hospitals will not credential a doctor if he is with an RRG. A broker should have you check with your hospitals prior to buying an RRG.
• If an RRG goes bankrupt, while you have an open claim, then it will not likely be able to pay your lawyer’s bills for defense, and your attorney will come to you for payment, and any judgment will be your personal liability.

If you have a good honest broker, he will tell you all of this. If you have a broker like ABC, all he/she will talk about is the savings, while he/she makes an obscene compensation while charging you outrageous fees.

HCP National is not a law firm and does not provide legal advice. We are a medical malpractice insurance broker and risk manager.

Quick FAQs

What are FMLA and CFRA?

FMLA stands for Federal Family and Medical Leave Act.
CFRA stands for California Family Rights Act.
Both of these acts represent Federal and State laws that allow eligible employees to take up to 12 work weeks of unpaid leave during any 12 month period.

What are the acceptable reasons for taking a leave of absence?

For FMLA, reasons include a serious health condition of the employee, child, spouse, or parent; the birth of a child of the employee, placement of a child for adoption or foster care. This includes any period of incapacity due to pregnancy, including prenatal examinations or severe morning sickness.
CFRA works the same as FMLA, except that CFRA also allows for care of a registered domestic partner and excludes pregnancy. For pregnancy, California allows up to 4 months of Pregnancy Disability Leave (PDL) pursuant to the California Fair Employment and Housing Act for all employers with five or more full or part time employees. PDL is for any women hindered due to pregnancy, childbirth, or a related medical condition. This includes prenatal care and severe morning sickness.

Federal Family and Medical Leave Act (FMLA) for Covered Employers

Covered Employers are those who engage in activity affecting commerce and employ 50 or more employees in 20 weeks of current or preceding year.
Public agencies and private elementary and secondary schools are covered regardless of the number of employees.

California Family Rights Act (CFRA) for Covered Employers

Covered Employers are those who engage in business or enterprise in California and employ 50 or more employees in any 20 weeks of the current or preceding calendar year.
California, counties, and any political or civil subdivision of the state and cities are covered regardless of the number of employees.

FMLA and CFRA for Covered Employees

Covered Employees are employed with the employer for at least 12 months (need not be consecutive months), worked at least 1,250 hours during the 12 month period immediately preceding the leave, and employed at a worksite where 50 or more employees work within a distance of 75 surface miles.

What are the posting requirements?

An FMLA and CFRA notice explaining entitlements of leave and procedures for filing a complaint with the Department of Labor or Wage and Hour Division must be posted in a conspicuous place where applicants and employees tend to congregate.

Can the employer request medical certification?

With FMLA and CFRA an employer can request medical certification from the employee. The employer can ask for a second and even third opinion to verify the validity of the medical certification. However, under CFRA, a second or third medical opinion cannot be requested regarding the care of an employee’s family member. The employer must accept the certification.

What is the employer’s obligation to designate or deny leave?

For both FMLA and CFRA it is the employer’s obligation to designate or deny leave, in writing and indicate if leave is paid or unpaid. Designating leave must be done prospectively and not retroactively unless the employer lacks sufficient information as to the reason for leave.

FMLA and CFRA allowed time off

For FMLA, up to 12 weeks in an established 12 month period is allowed. Intermittent leaves or a reduced work schedule may be taken when medically necessary.
CFRA is the same as FMLA with the exception that leave(s) taken for the birth, adoption, or foster care placement shall be granted at a minimum of two week increments. On two occasions increments of less than two weeks may be used.
FMLA and CFRA leave will run concurrently, except in the case of a leave taken for disability due to pregnancy, childbirth, or a related medical condition in the State of California which is covered separately under the California Pregnancy Disability Leave.

How to determine paid or unpaid leave

FMLA and CFRA is unpaid, however, an employee may choose or the employer may require substitution of unpaid FMLA with vacation or other accrued time off and/or sick pay to the extent the circumstances meet the employer’s typical policy for the use of sick pay.

Does the group health coverage continue while the employee is on leave?

For both FMLA and CFRA, the employer must continue any group health plan for the duration of FMLA leave, at least 12 weeks in a 12 month period, under the same conditions as if the employee was actively working. Longer health plan coverage or other benefits are determined by the employer’s policy to the same extent and under the same conditions as would apply to any other leave. Employees are still responsible for their share of benefit premium payments.

What happens when the employee returns from leave?

For both FMLA and CFRA, the employee must be reinstated to the same or equivalent position at the end of leave. However, the employee has no greater right to reinstatement, benefits, or to other conditions of employment than if he or she was continuously employed during FMLA leave. The exception to this is for salaried key employees, defined as the highest paid 10% of all employees. If denial is necessary to prevent serious economic harm to the employer, then the employee needs to be properly notified.

The above is a brief summary of information pertaining to FMLA & CFRA and not a complete description of all rules and regulations. As rules and regulations are subject to change we cannot verify that all information is current or completely accurate. HCP National provides educational programs to assist our clients in risk management through compliance with various applicable federal laws, rules and regulations; however, this is neither an effort to practice law or a legal service. We encourage everyone to consult with their own attorney, certified public accountant, and tax professional on any issues involving specific facts, persons, circumstances, or situations.

NOTE THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW COVERAGES MAY WORK. YOUR INSURANCE POLICY AND ALL ADDENDUM ARE THE ONLY AUTHORITY OF HOW YOUR COVERAGE WORKS. DO NOT RELY ON THIS ARTICLE AS AN EXPLANATION OF YOUR COVERAGE. HAVE YOUR ATTORNEY REVIEW YOUR ENTIRE POLICY WITH YOU TO DETERMINE WHAT IS AND ISN’T COVERED.