By William D. Dyer

Q: What is EPLI Insurance?
A: EPLI Insurance or Employment Practices Liability Insurance covers the employer for exposures relating to employment (i.e. discrimination, wrongful termination et al).

Q: What’s the difference between term life insurance and whole life insurance?
A: Term insurance is for people who do not want life insurance to be paid when they die of old age. It is normally purchased to cover a ten or twenty year period, like when someone with young children wants coverage in case they die prematurely. The premiums are cheap, but they skyrocket at the end of the term, so most people cancel the coverage. It seldom results in a claim, since most people who buy term buy it when they are young and healthy. If there is a term life death claim, it is usually the result of an accident or a premature death due to an unexpected disease.
Whole Life insurance is as the name implies, it covers your entire life. This insurance is for someone who wants coverage for their entire lifetime. Since this has a greater coverage period, it is more expensive. But on a net basis, whole life is cheaper than term life. When you pay your premiums, a small portion goes to the cost of the life insurance and most goes toward an investment. As you pay your premiums after twenty or thirty years, you likely will have double what you paid in premiums in the investment portion of the policy, called cash value. You can use the cash by borrowing it, or you can leave the cash alone, and it will likely (depending on the design) pay for your premiums for the rest of your life.

Q: What is the average cost of malpractice insurance?
A: We get this question all the time, and it depends on which state, specialty, the year of the retro date and the doctor’s claims. If you want a ballpark, in CA, a non invasive specialty, fully mature, with no claims is $10K a year, and an invasive specialty is $45K. If it is NY, multiply those numbers by three or four.

Q: How much is the most basic professional liability insurance for a small business?
A: It’s tough to say because it depends on what they do for a living, but a ballpark small business is $5K to $10K a year.

Q: What is Personal Injury Medical Malpractice?
A: This is a new insurance that allows the patient to buy life, and a product similar to AD&D for claims arising from complications related to a recent surgery. For example, if you die from complications of a surgery, then your family will get a death benefit. If you lose your limb(s) or other functions, then you get a benefit. This new insurance may lower the chances of claims against the surgeon. First, if a family or patient suffers a loss and they get paid under this policy they may be less likely to sue the doctor since they received compensation. Also, this may help negate a patient or family’s lawsuit claim alleging that the doctor did not provide adequate information regarding the surgical risk, and therefore never obtained informed consent. How would a patient claim that he/she did not know the risks if he/she buys insurance to protect himself/herself from the surgical risk?

Q: FMLA versus workers comp?
A: FMLA is the Family Medical Leave Act. This provides job protected leave for non job related illness or leave to care for an immediate family member. Workers Comp provides benefits for job related injury disability or death.

Q: Are most ASO also stop loss?
A: ASO is administrative service only. These are the services that the employer needs to self-insure its health insurance; the business that performs this is called TPA, or third party administrator. ASO includes claims processing, utilization review, case management, PBM-pharmacy benefit manager, and PPO.
Stop Loss is the insurance that the employer buys to cover himself/herself for catastrophic claims that exceed a defined dollar amount (i.e. $50K or $100K). He/she would also purchase Aggregate Stop Loss Insurance. This covers the employer if his/her total annual claims exceed a defined amount of money. So do all ASO plans have stop loss? Not always. There are large employers who have thousands of covered employees that may feel they do not want to purchase stop loss, since their risk is very predictable. When it is not predictable, they have the necessary funds to cover bad years.

Q: Why do you have to issue a broker of record to a broker?
A: This is done when you want to hire a new broker to handle your insurance. Perhaps you currently have the best deal on your insurance, but you find another broker who provides more services than your current broker, and you want to change. You simply sign a letter addressed to all your insurers with your policy number which states, “I am appointing broker X as my new broker and please pay him/her the normal commissions that are being paid in relation to my insurance.” You should think about why you are changing brokers. Some clients sign this without knowing what it means or they think it is no big deal. It means the person who is handling your insurance now is going to be fired. It is similar to firing an employee. You would not do this for any particular reason. Also, do not do this midway into the policy if it is for group benefits. Inform your current broker, and make the change thirty days prior to renewal. Since the current broker did the work of shopping for all your coverage for free, and he/she is paid a monthly commission throughout the year, if you fire him/her midway into his/her policy then that money goes to the new broker for doing nothing. For all other insurance coverage you can make the change anytime after the renewal, since the broker gets paid the entire commission at the time of binding your renewal.

Q: What are reinsurance triggers in healthcare?
A: Not sure, but reinsurance can trigger on a specific basis, meaning a defined deductible amount or it can be a quota share where the reinsurer takes a percentage of risk over a certain dollar amount.

Q: What does D and O insurance mean?
A: Directors and Officers Insurance protects the current and former officers, directors, managers, and employees for claims arising from the operations of the company (not professional liability).
Example: an anti-trust claim or misuse of corporate assets or business interference.

Q: What does a statutory limit mean on a worker’s comp policy?
A: Workers Compensation covers all employees for work related injuries at 100% of the medical bills. It has a disability benefit and life insurance. In return for these free benefits, the worker cannot sue the employer for more than what the statute says. In California, this is $1 million. The only way to get more than this limit is if the worker can prove gross negligence.
Example: an employer knew he had a faulty machine and let an employee use it and he/she is severely injured or killed. This is why all employers, especially those who can have a big worker’s comp claim should buy umbrella liability insurance, since this is the coverage that may respond if you have a claim that exceeds the workers compensation statutory limit. General Liability will not respond.

HCP National Insurance is a provider of Errors and Omissions, Professional Liability, and General Liability Insurance for small businesses. We are experts in small business insurance, health care insurance, D and O and E and O insurance, medical malpractice insurance, and all other insurance coverage. Our home office is located in Aliso Viejo, CA.

NOTE THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW COVERAGES MAY WORK. YOUR INSURANCE POLICY AND ALL ADDENDA 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.

By William D. Dyer

Basic 101 of Errors and Omissions
Basic 101 of Professional Liability
Basic 101 of Malpractice Insurance

Let’s begin with the basic 101, all of the above insurance coverage are for the most part the same. All are terms that refer to liability coverage that covers a person or a business if it makes an error, or mistake, as it provides its service to its customers (patients in the case of medical malpractice insurance). Anyone with a business, who provides a service, needs this insurance.

Why you need Errors and Omissions Insurance, or Professional Liability Insurance, or Medical Malpractice Insurance

We find there are lots of businesses, who think they do not need Errors and Omissions or Professional Liability Coverage. They wrongly assume that their General Liability will cover them. General Liability normally excludes professional services.

Some people think their corporate shield will protect them. Good luck with that one! It is true that the corporate entity may shield you from personal exposure, but how long will your business or practice last while there is a Keeper appointed by the court sending notices to all your customers to pay him, not you?

In general, Errors and Omissions Insurance AKA E and O Insurance (or any of the other names in the title of this blog) is affordable and well worth it.

How to pick the right coverage

You will be given an application when you apply for professional liability insurance. Make sure you take lots of time to complete it fully and accurately. If the application does not allow you to describe what you do, add an addendum describing what you do. Be very accurate. You want to be fully covered by an insurer, so they need to know what you are doing. Never lie or understate what you are doing, just the whole truth and nothing but that. Then, after you submit your application, you will get some price quotes. Now it’s time to do your homework.

Do not look at price alone. You do not want to save $5K or even $50K now, and find out in the future that you did not buy the best coverage. You could possibly face an uncovered multi-million dollar lawsuit. If you are a pure price shopper you will get what you pay for in E and O Insurance, and you will not obtain the coverage that you need.

Doing your homework

First, go to Ambest.com and look up all the insurers from whom you received quotes. You want an insurer with billions in assets and an A, or A+, or A++ rating. You can also consider A- insurers, but A+ or A++ is ideal. This grading is AM Best’s way of designating what the insurers’ financial strength is; thus A++ is the highest grade it can assign. Never buy insurance from an insurer with a grade below A- , unless you have no choice. Once an insurer is in the B grade area, or lower, or worse no grade at all, the chances of it not being in business when you have a claim are higher. Like in school, you want the highest grade you can achieve.

Ask questions

Then, ask for a copy of the specimen policy with all the endorsements that apply to you. Quotes are not the coverage, the policy is. Look at the policy pages that show what is excluded first. If you see anything that may affect you having coverage, start asking questions. The same goes for what is covered, but we find that what is not covered most is telling.

Furthermore, ask specific questions in writing, and ask for a written response from the insurer via the broker. Save that response in your file. Also, it is a good idea to pay for an hour of your attorney’s time to review the policy. An insurance policy is a contract, and unless you or your broker has a JDL, you are not qualified to review a legal document fully.

Remember, this insurance policy can save you and your business millions of dollars, so choose wisely and do your homework before you purchase the insurance coverage.

HCP National Insurance is a provider of Errors and Omissions, Professional Liability, and General Liability Insurance for small businesses. We are experts in small business insurance, health care insurance, D and O and E and O insurance, medical malpractice insurance, and all other insurance coverage. Our home office is located in Aliso Viejo, CA.

NOTE THE ABOVE IS A GENERAL DISCUSSION ABOUT HOW COVERAGES MAY WORK. YOUR INSURANCE POLICY AND ALL ADDENDA 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.

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.