PRACTICE POINTERS

Insurance every practice absolutely must have

A business owners policy can save your practice. Here's how to find the right one.

By Dorothy L. Pennachio
Senior Editor

A patient slips on the icy sidewalk in front of your office. A fire destroys your computers. A flood renders your charts illegible. A burglar steals the petty cash and trashes the place. None of those losses are unthinkable. To cover them, you need a business owners policy.

These policies typically cover the structure of your office as well as the equipment and other contents in it in the event of fire or other catastrophe. They also provide liability coverage in case someone who's injured on your property sues you, and compensation for business interruption or loss of income due to a disaster.

If you already have a business owners policy, check with an agent you trust to make sure you have adequate coverage. Otherwise, if a disaster occurs, you could find yourself paying tens of thousands in repair and replacement costs that you thought your policy would cover. FP Clinton C. Sanford can attest to that: It's what happened after a cataclysmic fire gutted his clinic in Silverton, OR, three years ago.

Sanford has made several changes to his insurance coverage since the fire. Here's his advice, and some additional tips from insurance experts:

• Keep track of what you have. "One mistake we made was not keeping a running inventory of office contents," says Sanford. "Just before the fire, we'd added computers and purchased a new $12,000 endoscope, but we neglected to tell our insurance agent. As it turned out, our contents were underinsured at $140,000. If we'd had $200,000 worth of coverage, we'd have been able to get back to where we were before the fire."

• Stay in touch with your insurance agent. You need to update the agent not only about inventory changes, but also when your situation changes.

Suppose you've just built an office building, and the local building examiner gives you a certificate of occupancy. "Insure your building the moment the CO is issued, because that's when the contractor's insurance expires," advises Tom Myers, president and CEO of Physicians Insurance in Seattle.

"We had a situation where, on the day a doctor received his CO, he moved into his new building without contacting his agent to transfer his old coverage to his new premises," Myers says. "The first night, a pipe broke on the third floor, and the practice suffered hundreds of thousands of dollars worth of water damage." The insurer denied coverage but sought damages from the contractor for faulty construction and received full recovery for the doctor. Still, the doctor had to suffer through months of not knowing that the problem would be resolved, and he had no office in which to practice.

• Opt for an upgrade rider. Builders have to follow the latest codes when reconstructing an office building after a catastrophe. While the Silverton Family Clinic's insurance did cover the replacement cost of the building, it fell short on code upgrades made following the fire. Coverage for such upgrades is typically available as a rider, but the clinic's insurer didn't offer it. As a result, the doctors had to pay $13,000 out-of-pocket for wiring improvements and upgrades needed for ADA compliance.

• Make sure your charts are covered. After the fire, the clinic's charts were charred but mostly legible. With the help of temps and volunteers, the doctors photocopied what they could to restore patient records. Their insurance covered the $24,000 that the project cost them. Not all policies include "Valuable Papers and Records" coverage, though, so be sure to check yours.

• Check for flood protection. "One common misconception is that business owners policies always cover flood damage, but many don't," says Jeffrey S. McCauley, vice president of Eppa Rixey Agency in Cincinnati. Check for such coverage especially if your practice sits alongside a river or in an area prone to flooding. You may have to purchase coverage separately through the National Flood Insurance Program in your community.

• Get coverage for embezzlement. Are you protected if you find a staffer cooking the books or pocketing the copay cash? Talk with your agent about adding a fidelity bond to your policy. Consider purchasing a blanket bond to cover all your employees, not just your bookkeeper or office manager. With blanket coverage, you needn't update the policy every time someone new is hired or fired.

The premium for bonding varies according to the number of covered employees and the amount of coverage needed. If you have 10 employees, you'll pay about $240 a year for $25,000 of coverage or $325 for $50,000 in coverage. The amount proved stolen is reimbursed in full, up to the coverage limit.

These are just some of the possible holes in your business coverage, warns Sanford. "There are lots of exclusions, so read your policy carefully." Rick Mortimer, president of HealthCare Professionals' Insurance Services in Brea, CA, puts it this way: "Out of 40 pages of policy, many of those might describe what you're not covered for."

Your state or local medical association or specialty society probably offers business owners coverage, as does the insurance agency subsidiary of the AMA. Enrolling through an association may get you lower rates, additional coverage, and sometimes dividend programs, because of economies of scale.

Many doctors try to package their business owners policies with their professional liability policies. It's not always possible, though. "Many carriers are now very cautious about the level of risk they assume and have to curtail their medical malpractice business," says Shirley Connell, assistant vice president and director of policyholder services for Medical Liability Mutual Insurance in New York. "But it does make it simpler when you get your business owners and med mal from the same carrier."

Why? Because having a unified defense can help avoid coverage disputes. Sometimes it's hard to define whether an incident mandates a malpractice claim or a business owners claim. For example, if a patient falls off an exam table, was the accident a result of malpractice or general negligence? Or suppose the business end of your X-ray machine becomes detached and falls on a patient.

"When you have two insurance companies involved in such a case, they start pointing fingers and saying it's the other's responsibility," says Tom Myers. "The physician gets caught in the dispute.

"Many business policies have provisions that when a conflict occurs and more than one insurer is involved, each company must respond in some proportion," says Myers. "The claim is addressed and resolved, but when they have to share the responsibility, it involves the physician and takes time."

How much should a business owners policy cost? The amount you'll pay depends on your building's square footage, how it's constructed, where it's located, and the cost of replacing it plus any other property you want insured. The cost of protective devices, such as sprinkler systems and security alarms, also gets factored in.

A ballpark figure is five to 10 cents per $100 of value. For a small office containing $5,000 worth of contents, the rate might be $300 a year. For large practices, rates can go very high. John Marshall, director of health care risk services at the SilverStone Group in Omaha notes that the main factor determining the range in premium is the amount of property to insure.

"But do shop around," says Eppa Rixey's McCauley. "See who can provide the best combination of price, advice, and coverage."

What about cyberliability?

Cyberliability insurance policies can be designed to protect a physician or group against lawsuits for libel, invasion of privacy, infliction of emotional distress, and copyright and trademark infringements involving electronic communication.

You might think you don't need such coverage, but you could be surprised. Cyberliability is a significant and growing threat to any practice that has a Web site or whose employees use e-mail. Impending HIPAA regulations will impose fines and penalties for failing to maintain confidentiality of medical records.

"It's a huge issue," says Rick Mortimer, president of HealthCare Professionals' Insurance Services in Brea, CA. "Let's say you 'talk' via unencrypted e-mail to a patient about his erectile dysfunction or alcoholism, then hit the wrong key and send that message to someone else or to a whole group of people." Would your business owners policy cover you? Business insurers say No.

"Few court cases involving cyberliability exist, but the insurance industry has stated, in general, that business owners policies apply to premises liability like slips and falls, and provide coverage for personal injury, but not Internet liability," says Mortimer. "Business owners premiums simply don't contemplate internet exposure. Insurers can't expose themselves to $700,000 suits for a $500 premium.

"How much does cyberliability protection cost? It depends on the size of your practice, but also on your exposure—how involved your practice is on the Internet." Steven Haase, president of INSUREtrust in Atlanta, gives an example: "For a five-physician multispecialty practice with a Web site and e-mail access, the premium would be approximately $3,500 a year."

 

Dorothy Pennachio. Practice Pointers: Insurance every practice absolutely must have. Medical Economics Apr. 25, 2003;80:73.