Professional Liability Insurance Essentials in the Senior Living Marketplace

As we’ve explored for many years here in this monthly column, the senior housing industry includes a multitude of risks, emerging risks and liabilities. These risks require not only comprehensive and proactive risk mitigation but insurance coverage. Each year, Aon Global Risk Consulting’s (Aon) Actuarial and Analytics practice has conducted an actuarial analysis of general liability and professional liability (GL/PL) claim costs for the long-term care profession in the United States.

In the 2018 report, Aon’s finding concluded the following:

  • Loss rates, or losses per occupied bed, are increasing by 6% annually.

  • The 2019 forecast occurrence year loss rate limited to $1 million per occurrence is $2,410 per bed.

  • Total claim frequency is increasing by 3% annually.

  • The 2019 forecast occurrence year claim frequency is 1.11 claims per 100 occupied beds.

  • Claim severity or average size of a claim, is increasing by 3% annually.

  • The 2019 occurrence year GL/PL severity limited to $1 million per occurrence is forecasted to be $216,000.

You can see that there is an increase in claim frequency in skilled nursing facilities. Recent studies also show that assisted living and memory care communities are averaging higher severity losses than those in skilled nursing facilities.

As an attorney representing senior housing industry members and the insurance companies that provide professional liability risk coverage, I’ve been involved in excellent risk-management programming with owner and operators and also appreciate the need for a variety of insurance products to insure risks.

I want to highlight some of the essential insurance policies for senior housing operators, as well as various products.

Following are essential policies to consider for skilled nursing facilities:

  • Medical Professional Liability (Claims Made & Occurrence)

  • Medical Malpractice for Physicians and Other Providers

  • Commercial General Liability and Property

  • Miscellaneous Medical E&O

  • Primary and Excess Limits

  • Hired and Non-owned Auto

  • Sexual Misconduct/Abuse

  • Employee Benefits

  • Employment Practices

  • Punitive Damages Coverage

  • Resident Evacuation Expenses

  • Crisis Communication/PR Expense

  • Cyber/Privacy Liability

  • Civil Fines and Penalties

  • Medical Billing E&O and Regulatory Coverage

  • Management Liability (D&O, EPL, Fiduciary)

  • Worker’s Compensation

  • Additional Insured Coverage

  • Vicarious Medical Liability

Professional liability insurance covers the community from damages that result from a medical incident by facility staff members treating residents. Claims include negligence, medical malpractice and abuse/neglect.

Commercial general liability insurance covers some of the most common non-employee lawsuits that result from everyday business activities. A slip and fall claim may be covered with this policy.

Commercial property insurance is another common type of commercial insurance that all business, including senior facilities, should carry. It covers damages to the building as well as equipment, supplies, fixtures and furniture in the event that they are stolen, damaged or destroyed due to a fire or non-excluded natural disaster.

Workers’ compensation is essential for skilled nursing facilities. Staff may face risks for injury or accidents. Additionally, some residents with behavioral issues or with dementia can become violent resulting in employee injuries.

Commercial auto liability protects the community from damages resulting from an accident or injury in a commercial vehicle. Some facilities may take residents off-site for activities or treatments, creating additional liabilities.

Sexual abuse and molestation coverage is another necessary coverage for senior housing. Most general liability policies contain specific sexual abuse exclusions. Having policies and procedures in place to prevent sexual abuse and compliance with state and federal regulations will mitigate risk, and it’s important to secure this coverage as well. It is important to understand how this coverage is constructed with respect to defense costs and indemnity payments, as well as final adjudication implications.

Punitive damages coverage may cover claims for intentional and gross misconduct. Depending upon the states in which you operate, you may or may not be insurable by law. However, it is important that you understand how this would be implicated in the states in which you operate, as most lawsuits allege punitive damages claims.

Vicarious medical liability covers this exposure for the community and any employed medical professionals.

Civil fines and penalties are insurable, although some policies do not cover this portion of any claim, which could be significant.

I do not describe all of the insurance policies to consider. Please contact me if you’d like to discuss further.

Nursing facilities seek insurance coverage through traditional insurance providers. There are additional coverage programs that include alternative risk transfer programs such as surplus line carriers; captives; and risk retention groups (RRGs). A surplus line carrier is unregulated and handles risks that admitted carriers are unwilling to write and although recognized as an insurance carrier, is licensed in another state.

Captive insurance programs are “an external funding mechanism whereby a provider (or group of similarly related providers or a trade association) creates a separate legal entity, typically a subsidiary or sister corporation, to act as the provider’s limited purpose insurance company.” A captive can write insurance or reinsurance and is required to file financial statements, audit reports and actuarial reports, but not rate justifications and form filings. Captives are also not covered under the state reserve fund.

Self-insurance funds can be formed by a group or an organization and are “arrangement(s) whereby a provider contributes monies to a self-insurance reserve that is held by an independent entity and specifically dedicated to the payment of anticipated professional liability claims.”

Similar to captives, RRGs are member-owned business associations that are formed specifically for the purpose of pooling and sharing similar business risks. RRGs are effectively exempt from state law except that the states can still collect premium and surplus taxes, force compliance with unfair claim settlement practices and follow a few other requirements common to insurance companies. States may not, however, dictate rates, coverages, forms, methods of operations or investment activities, loss control or claims. RRGs are often used in conjunction with captives to insure various levels of risk.

This article provides a glimpse into the various insurance products that cover the risks in the senior housing industry and serves as an overview for those who would like to learn more about the relationship between the insurance company, the community and insured risk.