Business Owners Insurance policies protect your business in the event of a lawsuit arising out of personal injury or property damages. Depending on your specific business needs, Business Owners insurance can be purchased in many forms including General Liability, and Product Liability. Business Owners insurance is important for companies of all sizes to ensure your business and personal assets are protected should a lawsuit arise.
If your policy pays defense costs “outside” the limits of liability then your defense costs do not erode the limits of liability of your policy. As an example – if your policy limits are $1 million per occurrence and $3 million aggregate and your defense costs for a case are $100,000, you would still have $1 million to cover a potential award for that claim. If your policy pays defense costs “inside” the limits of liability then you would have only $900,000 left to cover a potential award in the previous example. Clearly – it is preferable to purchase a policy with defense costs “outside” the limits of liability.
How each insurance company defines a “claim” is another important consideration when comparing policies.
“Incident reporting” allows the physician to report an adverse outcome to the carrier as a potential claim. This is important because for a claim to be covered under a claims-made policy, the incident must BOTH happen AND be reported as a claim while the policy is in force.
If an insurance company requires that the insured receive a “written demand for damages” in order to consider a claim to be reported – then the physician must wait to be sued before the claim is recognized! This can be a real problem for physicians wishing to change professional liability carriers: Most insurance companies would decline to offer a policy to prospective clients who can expect to be sued in the future for past adverse outcomes. The carriers often consider such a situation to be the same as “buying future claims.”
Consent to Settle
The best interests of the insurance company ARE NOT ALWAYS the same as YOUR best interests. You should try to obtain a policy with a “consent to settle” clause which requires the carrier to obtain your written permission to settle a claim against you. If not, the carrier can settle a claim that you believe is very defensible without your permission.
A “hammer” clause is one in which the insurance company must obtain your written permission to settle a claim against you BUT YOU ARE RESPONSIBLE for all costs exceeding the amount of the settlement proposed by your carrier if you will not agree to that settlement. If you push the case to trial and you win — you avoid having the proposed settlement becoming a permanent part of your claims history. But if you lose — you will have to pay the difference between the amount of money the case could have been settled for and the actual costs of awards and extra defense.
The exclusions of an insurance policy state what the policy WILL NOT cover. For example: Most individual practitioner’s policies specifically exclude coverage for duties as a “medical director.” Your should study very carefully the exclusions of your current and any future medical malpractice insurance policy.
Limits of Liability
Your limits of liability are what the insurance company will pay on your behalf in the event of a claim. If your limits of liability are “$1,000,000 / $3,000,000” it would mean that the insurance company would pay a maximum of $1 million per occurrence and $3 million per year for claims. For further clarification, refer to the examples below and assume limits of liability of $1,000,000/$3,000,000:
In one year you have 4 lawsuits each for $800,000: The insurance company pays $3.000,000 and you are responsible for $200,000.
In one year you have 2 lawsuits each for $2,000,000: The insurance company pays $2,000,000 ($1 million each) and you are responsible for $2,000,000 ($1 million each).
In one year you have 9 lawsuits each for $20,000: The insurance company would pay everything.
So, depending on your individual risk – there are a wide variety of limits of liability available that may be an attractive option. However, please note that most states have minimum requirements for limits of liability should you have hospital privileges.