the center for professional education presentation professional liability (excluding d&o) aig...

THE CENTER FOR PROFESSIONAL EDUCATION

Presentation

Professional Liability

(excluding D&O)

AIG

St. John’s University

Wednesday, September 30

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THE CENTER FOR PROFESSIONAL EDUCATION 2

Tort

A wrongful act.

One party has harmed another.

Not a breach of contract.

Courts provide remedies:•Money to reimburse loss.•Performance to fix the situation.


Business Torts

• General. Losses incurred from business operations.

• Employer. Injuries incurred by workers in the course of performing their duties.

• Product. Failure of a product or service to perform as advertised.

• Professional. Harm from faulty services.


Liability Coverages

Damages. Insures companies from losses from general liability exposures.

Duty to Defend. Pays the costs of defending the company against liability claims and legal fees.


Liability Coverage Forms

Occurrence. The policy covers an injury or damage that occurs during the policy period.

Claims-made. The policy covers claims made during the policy period regardless of when the injury occurs.


Question (1)

CPA firms conduct annual audits on companies to certify that financial statements:

• Match generally accepted accounting principles.• Comply with statutory requirements.• Disclose all relevant matters.

The CPA issues an unqualified opinion if a firm is in full compliance with the standards.

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Question (2)

• March, 2015. Bergman CPA gives Darwin Corporation an unqualified opinion.

• October, 2015. The U.S. Securities and Exchange Commission (SEC) announces it launched an investigation of Darwin's financial practices.

• May 4, 2016. The U.S. SEC charges Darwin with money laundering and fraud.

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Question (3)

• Darwin declares bankruptcy in 2017.• Hundreds of people lose money.• Six lawsuits are filed against the Bergman CPA

firm for failing to uncover the misbehavior.

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Question (4)

Bergman had two insurance policies to cover lawsuits resulting from mistakes made on audits:

• 2015. A claims-made policy from United Insurance.

• 2016. An occurrence policy from Northern Insurance

• 2017. No insurance.

Does Bergman have insurance to cover the loss?

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Answer

No.• The claim was not filed during the period of

claims-made coverage.• The occurrence did not occur during the time

period of the occurrence policy.

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Sources of Professional Liability

A profession is a unique form of liability for several reasons:

Defined knowledge and skills. People know what to expect from professionals.

Formal training or education. It qualifies an individual to perform at a high level.

Performance Expectation. A failure to meet the expectation can produce a lawsuit.


Professional Liability Insurance (1)

Who is Covered?• Errors and Omissions. Lawyers, Accountants,

Financial Planners.• Medical Professionals. Doctors, Nurses,

Dentists, Hospitals.• Directors and Officers. Corporate officers and

board members.

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Professional Liability Insurance (2)

What is Covered?•E&O. Covers losses and defense costs for alleged financial harm in the service or product. •Medical Malpractice (MedMal). Covers losses caused by health care providers who do not meet expected professional standards.•Directors and Officers. Covers losses from actions outside the scope of the authorized duties or with a conflict of interest.

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Errors and Omissions

Characteristics are:• Form. Claims made.• Deductible. High.• Damage. Does not cover tangible property

losses, bodily injury, libel, or slander.• Exclusions. Few. Include dishonest, fraudulent,

criminal, and malicious acts.

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Medical Malpractice Coverage

Characteristics include:• Form. Claims made.• Deductible. Low.• Coverage. Individuals, groups, and

organizations.• Liability. Covers accidental acts as well as

deliberate events that are faulty.• Exclusions. Coverage limits.

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MedMal Buyers

Three groups of buyers can be identified: Health Care Facilities. Hospitals, clinics,

skilled nursing centers, and rehabilitation centers.

Medical Professionals. Physicians, surgeons, dentists, and nurses.

Facilities and Professionals. Single policy covering the facility and the medical professionals that work in or with it.

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Directors and Officers

Characteristics include:• Breach of Fiduciary Duty. Failure to put the

interests of organization above own interests.• Negligence. Failure to make reasonable

decisions or actions outside the assigned role or responsibilities.

• Bad Faith. Actions outside the scope of the authorized duties or with a conflict of interest.

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Question (1)

A hospital rents clinic space in an office building. A man was sitting in the clinic waiting to see a doctor.

• A sign on the wall said “no pets allowed.”• A patient sitting next to the man had a large dog

on a leash.• The dog bit the man on the arm.


Question (2)

• The doctor treated the bite, assuring the man that the wound was clean and he would have no problems.

• Two weeks later, doctors amputated the man’s swollen leg.

• As he recovered from surgery, the man learned the dog had rabies.

• He underwent an expensive and painful series of shots.


Question (3)

Who will the person sue for damages?


Lawsuits

The man can sue:•The office building for unsafe premises.•The hospital for unsafe premises.•The hospital for medical malpractice.•The doctor for professional malpractice.

Does insurance cover any damages awarded by the court?


Question (1)

Dentist Robert Woo used anesthesia to make a patient unconscious.

• While she sat in the dentist chair, he inserted fake boar tusks into her mouth and took pictures.

• When he revealed the practical joke, the patient sued for damages.


Question (2)

• Fireman's Fund Insurance issued a professional liability policy agreeing to pay defense costs and damages if the dentist was sued for improper or negligent medical treatment.

• The insurer denied the claim. • Woo sued the insurer. • Should he win the lawsuit?


Answer (1)

The lower court awarded dentist Robert Woo $750,000 from Fireman's Fund Insurance.


Answer (2)

A Washington state appeals court overturned a decision.

• It was not a professional liability behavior.• Putting fake boar tusks in a patient's mouth as a

joke "could not conceivably be considered" covered under a professional liability insurance policy.


Negligence

Negligence is the most common basis for a a professional liability lawsuit.

• Behavior. An provider failed to behave in a highly skilled manner.

• Duty. The professional had the duty to exercise a proper degree of care in a given situation.

• Harm. The behavior caused harm to an individual or property.


Presentation

Errors and Omissions


E&O Insurance

Characteristics:• Other Names. Professional liability insurance

(PLI). Professional Indemnity Insurance (PII).• Buyers. Professional individuals and

organizations that provide advice or service.• Coverage. Cost of defending against client

negligence claims and damages from a lawsuit or settlement.

• Exclusion. Criminal acts.

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E&O Buyers

E&O insurance is purchased by individuals and organizations in:

• Consulting, Broking, and Legal Services.• Accounting and Financial Services.• Construction and Maintenance Services.• Charitable and Nonprofit Services.

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Question

The wording of E&O policies can be tricky. As example:

• A professional liability policy has been issued to a lawyer.

• It covers a "negligent act, negligent error, or negligent omission.”

• A lawsuit alleges damages because a lawyer did not file a motion to dismiss a lawsuit.

• Does the policy cover legal fees and damages for the failure to file the motion?

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Answer

Maybe. •It covers the loss only is negligence is proved.•Not all lawsuits involve such a motion.•The failure to file could simply be a judgment call.•Better wording would be “negligent act, error, or omission.”

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Question

A dentist offered cosmetic surgery services.• A man was severely injured in an accident.• The dentist agreed to repair his teeth.• After looking more closely, the dentist said

nothing could be done.• The man alleged negligence and sued for

$300,000 in damages.• Does a professional liability lawsuit cover the

lawsuit?

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Answer

Yes.

• A lawsuit related professional services.

• No damage so negligence does not apply.

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Question (1)

An accountant prepares tax returns for wealthy investors.

• A client asked him to manage a trust fund for a non-profit foundation.

• He invested in high-risk and high-return securities.

• The portfolio collapsed causing the foundation to file bankruptcy.

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Question (2)

• The investor accused the accountant of misconduct and sued for reimbursement of losses.

• The accountant had an E&O policy.

• Does the policy cover damages and legal fees?

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Answer

Issues include:

• Is tax preparation a profession?

• Is investment advising covered for a professional accountant?

• Was informed consent present?

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Informed Consent

A medical provider seeks to obtain an informed consent prior to providing a medical intervention.

This is a higher standard than asking a patient to sign a written consent form.

The professional should engage in a process of communication so the client/customer/patient understands the risks and benefits prior to authorizing a specific action or treatment

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Informed Patient or Client

The professional should provide information as part of the process of securing consent to perform the agreed-upon work.

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Question

A lawyer had a $10 million E&O policy.

• He lost a lawsuit.

• His client paid $3 million in damages and threatened to sue the lawyer.

• The client offered to settle for $2 million.

• The lawyer refused claiming it would damage his reputation.

• Can the insurer settle?

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Answer

Current forms usually allow the insurer to settle without the insured’s consent.

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Question

While errors and omissions policies are generally claims-made coverage, an extended endorsement period can be added. Who needs such an endorsement?

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Answer

An extended reporting period endorsement is needed by: Professional that retires. Individual or group that changes

insurers. Individual or group that drops E&O

coverage.

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Question (1)

A financial planner presented the following information on a company and recommended buying its stock.

Assets Debt & Capital

Cash 350B Debt 400B

Securities 500B Capital 450B

Toxic Assets 0

Total 850B Total 850B


Question (2)

The financial planner was aware that:• The company had sold $50 billion of toxic

assets prior to preparing the balance sheet.• It had a repurchase agreement to buy them

back one week later paying a fee of $1 billion.

.

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Balance Sheet before Transfer


Cash 300B Debt 400B


Toxic Assets 50B



Balance Sheet after One Week


Cash 299B Debt 400B


Toxic Assets 50B



Question (3)

• The company went bankrupt.• The investor sued.

Is this covered by professional liability insurance?

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Answer

A court would decide the dishonesty issue. Numbers come from Lehman Brothers bankruptcy case.


Question

A patient received medical treatment and incurred no improvement or decline in his condition. Subsequently he learned the doctor: Made the wrong diagnosis. Failed to treat the ailment. Prescribed the wrong drug.

Which of the above are examples of medical malpractice?

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Answer

None of the above. In order to be medical malpractice, the patient must be harmed or suffer a worsened condition.

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Question

In spite of efforts to reduce medical losses, they occur. Do many people die each year while undergoing medical treatment or medication?

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Hospital Deaths

Estimates are

Cause of Death Annual Deaths

Unnecessary surgery: 2,000

Medication errors: 7,000

Hospital non-medication errors: 20,000

Infections in hospitals: 80,000

Adverse effects of medications 106,000

Total 215,000

5252


Question

The health care industry can purchase professional liability insurance. Who are the buyers of medical malpractice insurance?

5353


Buyers

Three groups of buyers can be identified: Health Care Facilities. Hospitals, clinics,

skilled nursing centers, and rehabilitation centers.

Medical Professionals. Physicians, surgeons, dentists, and nurses.

Facilities and Professionals. Single policy covering the facility and the medical professionals that work in or with it.

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Question

Can professionals waive the right to sue a medical or other professional for careless behavior?

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Waivers

Professionals can obtain waivers and use them to defend in professional liability lawsuits. It can take two forms:

Intentional. Conscious surrender of a right. Unintentional. Taking actions or failure to

provide proper information may waive the professional’s obligation to achieve a promised outcome.

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Insurer Professional Liability

Insurance carriers are often targets of claims bordering on professional liability.

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Question 问题

Who posted the following quote on its web page?

“Insurance companies are long on happy slogans, but infamous for denying . . . claims.”

谁在其网页上引用了下面这句话？“ 保险公司擅长唱高调，但却因拒赔而声名狼籍。”

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Answer 回答

The Gulfport, Mississippi, law firm of Owen, Galloway & Myers. 密西西比州的一家律师事务所•The firm is your “Ally in Insurance Coverage Disputes.” 该公司是“你在保险范围争议上的盟友”•Its “experienced attorneys” represented 400 clients with property damage claims after Katrina.

公司 “经验丰富的律师”在卡特里娜飓风过后代理了400 位客户的财产损失理赔案•The firm won many bad faith claims after Katrina. 卡特里娜飓风后，该公司在很多不公平理赔案中胜诉

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Question 问题

Who posted the following quote?

“You trust your insurer to help when you need it. Some insurance companies make bad faith claims. When you are the victim of bad faith claims, you need a bad faith insurance lawyer to defend your rights.”

谁发布了下面这段话？“ 你相信保险公司在需要时能够帮助你。但某些保险公司进行了不公平的理赔。当你成为不公平理赔的受害者时，你需要一位不公平保险律师来维护你的权益。”

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Answer 回答

The New Orleans Law Offices of Edward A. Shamis, Jr., J.D. handles: 新奥尔良的一家律师所，他们的业务包括：•Birth injuries. Boating accidents. Brain injuries. Distracted driving accidents. Dog bite injuries. Drunk driving accidents. Fires and burns. Insurance bad faith. Medical malpractice. Motorcycle accidents. Personal injury. Premises liability. Catastrophic injuries. Back injuries. Texting and driving accidents . Trucking accidents. Workers compensation. Wrongful death.

出生创伤，划船事故，脑损伤，分心驾驶事故，狗咬伤，酒后驾车事故，火灾和烧伤，保险不公平事件，医疗事故，摩托车事故，人身伤害，物业责任，巨灾伤害，背部伤害，短信和驾驶事故，卡车事故，劳工赔偿，过失致人死亡等。

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Leader’s Guide

Northeast Hospital Case Study

Professional Liability


Initial Visit

Janet Saunders, 43, had a physical examination by Frank Lee at Northeast Hospital.

• Her health problem involved sinuses.• Swollen with allergies.• Severe headaches.• Refused surgery three times.


An Incident

A few weeks later:• She fell down a flight of stairs.• She felt a sharp pain in her back.• She had a headache all day.


The Next Day

• Dr. Lisa Barker, a hospital chiropractor, treated her for possible back injury.

• The pain subsided.• Mrs. Saunders told Dr. Barker about the

headache.• Dr. Barker did not review the file.


Two Days Later

Dr. Lee examined Mrs. Saunders.• He concluded the headache was the result of

the fall, not the sinus problems.• He gave her a powerful pain medication.• The headache was slightly less painful.• The headache resumed its severity.


Day 36 After the Fall

Mrs. Saunders collapsed.• She was rushed to the emergency room.• She was diagnosed with a burst aneurysm.• She was completely paralyzed.


Long-term Injury

The paralysis was long term. • She needed 24-hour nursing care. • She had the ability to speak slowly.• She filed a lawsuit against Northeast Hospital,

Dr. Frank Lee, and Dr. Lisa Barker.


Alleged Negligence

She alleged the hospital and doctors failed to recognize a “sentinel bleed.”

• It led to a ruptured aneurysm.• If the doctors identified the problem, survey

would avoid the aneurysm. • The failure to identify the problem was

negligence.


Bodily Injury Liability Claim

Negligence: Failure to exercise reasonable care.• Duty to Act. • Failure to Act.• Occurrence of Loss .• Proximate Cause. A cause-effect relation-ship

must exist between the act and the loss.


Hospital MedMal Coverage

• $5 million policy limit.• $500,000 retention.• No deductible.


Physician MedMal Coverage

• $2.5 million policy limit.• $500,000 retention. • No deductibles.


Defense of Claims

PPIC pays legal and settlement costs outside policy limits.

• PPIC must defend claims.• PPIC can make the final decision on whether to

settle.


First Plaintiff Deposition

A retired doctor expert witness.• Hospital should have procedures to recognize

an aneurysm. • All three parties were negligent.


Second Plaintiff Deposition

Ear, nose, and throat specialist:• Doctors did not deviate from accepted medical

practice.• Doctors should have recognized the sentinel

bleed symptoms.• This does not mean that the doctors were

negligent.


Third Plaintiff Deposition

Mrs. Saunders’ husband:• Prior to aneurysm. was in constant pain from

her back and sinuses.• He thought about taking his wife to a hospital

but did not do it.


Defendant Expert Deposition

A neurosurgeon:• It is difficult to treat a cerebral artery bleed.• Doctors did nothing wrong• She maintained this position during intensive

questioning.


Dr. Lee Deposition

• He had seen Mrs. Saunders four times after her fall.

• She said the headache pain was easing but the back pain was constant.

• He said he saw no change to require a neurosurgeon.


Dr. Barker

• She was quite thorough and saw no signs of an aneurysm.

• She said most of her patients have headaches.• A fall could increase the severity of sinus

headaches.


Other Depositions

Six other individuals were questioned on various aspects of the case.


Plaintiff Motion #1

The plaintiff’s lawyers asked:• Permission to show a jury a videotape of “a day

in the life of Mrs. Saunders” in the long-term care facility.

• The hospital objected.


Plaintiff Motion #2

The plaintiff’s lawyers also asked:• Permission for the jury to visit Mrs. Saunders in

the hospital.• The jury should see where she will spend the

rest of her life under perpetual care.


Exercise

• The trial will start in 14 days.• Mrs. Sanders wants to settle for $6 million. • Should PPIC agree?

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