Finance 431: Property-Liability Insurance Lecture 18: Professional Liability

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Finance 431Property-Liability
InsuranceLecture 18Professional Liability
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Professional Liability Insurance

• Overview of Exposure and Insurance
• Physicians Professional Liability Insurance
• Accountants Professional Liability Insurance
• Directors and Officers Liability Insurance

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Overview of Professional Liability Exposures and
Insurance

• Duties of Professionals
• Contractual duty
• Damages
• Compensatory
• Consequential
• Liquidated
• Nominal
• Tort-related duty
• Contract versus tort actions
• Professional corporations

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Overview of Professional Liability Exposures and
Insurance

• Professional Liability Coverage under CGL
• Professional health care services exclusion
• Coverage restricted to
• Bodily injury
• Property damage
• Personal injury
• Advertising injury
• Professional liability exclusion sometimes added
  

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Professional Liability Insurance

• Common Characteristics
• Most coverage written by specialized insurers
• Covered acts and consequences
• Differs from business exposure
• Coverage depends on profession
• Medical - injury
• Accountants, attorneys - financial harm
• Errors and omissions coverage - negligence

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Common Characteristics (cont)

• Who is covered
• Professionals, partners, owners, officers
• Defense coverage
• Sometimes included in policy limits
• Sometimes settlement requires insureds consent
• Coverage triggers
• Claims-made common
• Extended reporting period is not guaranteed and
  not unlimited
• Coverage territory

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Physicians Professional Liability Insurance(also
known as Medical Malpractice)

• Loss exposure
• Legal standards - negligence
• Standard of care
• Locality rule
• Specialists and duty of referral
• Delegation
• Diligence and abandonment
• Informed consent

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Physicians Professional Liability Insurance

• Common allegations
• Surgical error
• Improper diagnosis
• Improper tests
• Lack of informed consent
• Use and administration of anesthetics or drugs

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Physicians Professional Liability Insurance

• Defenses
• Statute of limitations
• Good Samaritan statutes
• Contributory negligence
• Informed consent

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Physicians Professional Liability Insurance

• Policy provisions
• Insuring agreements
• Individual coverage
• Organization coverage
• Exclusions (varies by policy)
• High risk medical procedures
• Criminal acts
• Sexual misconduct
• Proprietary activities
• Punitive damages Discrimination
• Pollution Contractual

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Physicians Professional Liability Insurance

• Loss Control - Measures to reduce or eliminate
  hazards
• Do not diagnose by phone
• Do not press for collection of fees if any basis
  for suit
• Verify patient identity and operation before
  surgery
• Do not admit fault
• Maintain professional manner and tactful
  approach
• Delegate carefully
• Check medical equipment
• Maintain accurate records
• Avoid overly optimistic prognosis
• Maintain confidentiality
• Arrange for a qualified substitute

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Accountants Professional Liability Insurance

• Loss exposure
• Breach of contract
• Improper or incomplete performance
• Tort liability
• Failure to perform with reasonable professional
  
• care and competence
• Statutory liability
• Securities laws
• ERISA

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Accountants Professional Liability Insurance

• Common allegations against accountants
• Tax services
• Audit services
• Accounting services
• Client counterclaims (when suing to collect
  fees)
• Failure to detect embezzlement
• Securities laws
• Business and investment advice
• Breach of fiduciary duties
• Management advisory services

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Accountants Professional Liability Insurance

• Policy provisions
• Insuring agreement
• Professional services
• Defense costs usually within policy limits
• Who is insured
• Named insured, officers, directors, partners,
• stockholders and employees for professional
• services
• Heirs, executors, administrators and legal
• representatives

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Accountants Professional Liability Insurance

• Exclusions that may apply
• Bodily injury or property damage
• Dishonest or criminal acts
• Defense against these charges covered
• Innocent insureds held liable for dishonest
  acts of another are covered
• Punitive damages
• Contractual liability

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Example Accounting Office

• Ned Numbers owns and runs a small accounting firm
  with the following policies
• Building and Personal Property
• Commercial General Liability
• Workers Compensation
• Accountants Professional Liability
• For each of the following incidents, indicate
  which policy would apply.

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A client waiting for an appointment with Ned
burns himself on hot coffee Neds receptionist
served.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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Ned develops eyestrain from reading so much fine
print at work and needs to buy eyeglasses.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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One of Neds clients is fined by the IRS when
Ned misses a tax filing deadline.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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One of Neds assistants releases the tax forms of
one of his clients to a newspaper, which prevents
the client from winning a local government
contract.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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One of Neds assistants is injured trying to put
out a fire at work.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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The fire described in the prior question damages
the firms computer system and destroys the tax
records of hundreds of clients.

• A) Building and Personal Property
• B) Commercial General Liability
• C) Workers Compensation
• D) Accountants Professional Liability
• E) None of the above

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Directors and Officers Liability

• Legal background
• Liability to shareholders under state
  incorporation laws
• Duty of care
• Make informed decisions
• Business Judgment Rule
• Duty of loyalty
• Ensure decisions are in the best interests of all
  shareholders when a conflict exists

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Legal Background - Continued

• Liability to shareholders under securities laws (
  federal and state)
• Disclose material information in timely manner
• Types of suits
• Derivative on behalf of corporation
• Direct actions-on plaintiffs behalf
• Individual
• Class

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Directors and Officers Liability Indemnification

• Indemnification
• D Os can be reimbursed by corporations for
• Legal costs
• Settlements
• Judgments
• Fines
• Problem What if corporation is bankrupt?

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Directors and Officers Liability Insurance

• D O insurance covers
• Losses not indemnified by corporation
• Indemnified losses paid by corporation
• Common exclusions
• Illegal personal profit
• Willful misconduct

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Directors and Officers Liability Class Action
Suits

• Incentives to settle securities class actions
• Merit of securities class actions

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Latest Conviction of Tort Lawyer

• Melvyn Weiss Shareholder Class Action King
• On March 20, 2008 he agreed to plead guilty to
  participating in a criminal conspiracy
• He provided improper kickbacks to clients of
  Milberg Weiss LLP
• Clients were hired to serve as name plaintiffs
  which allowed Milberg Weiss to be the lead
  counsel and earn larger fees
• He lied to judges that all clients were treated
  equally
• 1983-2005 Weiss personally earned 210 million
• Faces 18-33 months in prison and 10 million in
  fines