Finance 431:Property-Liability Insurance
Lecture 18:Professional Liability
Professional Liability Insurance
Overview of Exposure and Insurance
Physicians Professional Liability Insurance
Accountants Professional Liability Insurance
Directors and Officers Liability Insurance
Overview of Professional Liability Exposures and Insurance
Duties of ProfessionalsContractual duty
Damages CompensatoryConsequentialLiquidatedNominal
Tort-related dutyContract versus tort actionsProfessional corporations
Overview of Professional Liability Exposures and Insurance
Professional Liability Coverage under CGLProfessional health care services exclusionCoverage restricted to:
Bodily injuryProperty damagePersonal injuryAdvertising injury
Professional liability exclusion sometimes added
Professional Liability InsuranceCommon 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
Common Characteristics (cont)Who is covered
Professionals, partners, owners, officersDefense coverage
Sometimes included in policy limitsSometimes settlement requires insured’s consent
Coverage triggersClaims-made commonExtended reporting period is not guaranteed and not unlimited
Coverage territory
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
Physicians Professional Liability Insurance
Common allegations
Surgical error
Improper diagnosis
Improper tests
Lack of informed consent
Use and administration of anesthetics or drugs
Physicians Professional Liability Insurance
Defenses
Statute of limitations
Good Samaritan statutes
Contributory negligence
Informed consent
Physicians Professional Liability InsurancePolicy 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
Physicians Professional Liability InsuranceLoss Control - Measures to reduce or eliminate hazards
Do not diagnose by phoneDo not press for collection of fees if any basis for suitVerify patient identity and operation before surgeryDo not admit faultMaintain professional manner and tactful approachDelegate carefullyCheck medical equipmentMaintain accurate recordsAvoid overly optimistic prognosisMaintain confidentialityArrange for a qualified substitute
Accountants Professional Liability InsuranceLoss exposure
Breach of contract
Improper or incomplete performance
Tort liability
Failure to perform with reasonable professional
care and competence
Statutory liability
Securities laws
ERISA
Accountants Professional Liability InsuranceCommon 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
Accountants Professional Liability InsurancePolicy 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
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
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.
A client waiting for an appointment with Ned burns himself on hot coffee Ned’s receptionist served.
A) Building and Personal Property
B) Commercial General Liability
C) Workers Compensation
D) Accountants Professional Liability
E) None of the above
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
One of Ned’s 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
One of Ned’s 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
One of Ned’s 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
The fire described in the prior question damages the firm’s 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
Directors and Officers Liability
Legal backgroundLiability to shareholders under state incorporation
lawsDuty of care
Make informed decisions
Business Judgment Rule
Duty of loyaltyEnsure decisions are in the best interests of all shareholders
when a conflict exists
Legal Background - Continued
Liability to shareholders under securities laws ( federal and state)Disclose material information in timely manner
Types of suitsDerivative – on behalf of corporation
Direct actions-on plaintiffs’ behalfIndividual
Class
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?
Directors and Officers Liability –Insurance
D& O insurance coversLosses not indemnified by corporation
Indemnified losses paid by corporation
Common exclusionsIllegal personal profit
Willful misconduct
Directors and Officers Liability –Class Action Suits
• Incentives to settle securities class actions
• Merit of securities class actions
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