The Importance of Professional Liability
Insurance in Managing Risk

All professionals incur the risk of being sued and of losing a substantial judgment. Often guilt or innocence has less to do with the outcome than does the public's perception of a plaintiff's needs. Risk is real. The issue is how one should efficiently manage risk, including its transfer to institutions skilled at managing it. And healthcare professionals' risk is increasing because of a number of factors.

Changes in Healthcare Financing

With the advent of managed care and the efforts of healthcare institutions to control healthcare delivery costs, patient care has undergone dramatic changes. Individuals admitted to healthcare institutions for in-patient care are generally more acutely ill than in the past, and they are discharged to alternative care sites quicker. Along with the changes in patient profiles, healthcare facilities' staffing has also changed, with nurses becoming more active as individual participants in the medical treatment process, while at the same time becoming increasingly responsible for unlicensed assistive personnel, nurses' aides, and other minimally trained workers.

Changing Practice Settings

Early discharge of patients, many of whom are still acutely ill, to alternative care sites, most frequently the patients' own homes, has also served to increase the responsibility of nurses in the care delivery process. Often, the nurse is not only responsible for the delivery of direct care but is also responsible for management of the care delivery team, including assessing the need for other services such as physical therapy, occupational therapy, and respiratory therapy, making these care recommendations, and monitoring the results. The nurse may also be responsible for the supervision of unlicensed personnel such as personal care attendants and nurses' aides.

With this increased responsibility comes an increased exposure to liability risk, and these changes have not gone unnoticed by plaintiffs' attorneys.

Litigious Nature of Americans

Advancements in technology and procedures have produced a conundrum: medical practitioners and their patients enjoy the benefits of early detection and diagnosis, the ability to treat illness in its early stages, and less invasive surgical procedures. Correspondingly, Americans' perceptions of what healthcare professionals can and cannot do has become increasingly unrealistic. Medicine is an art, not an exact science, and nature and other biological factors play a role in outcomes. Yet Americans believe that all outcomes should be perfect and are quick to place blame on medical professionals if optimal results are not achieved. They are also quick to seek redress within the legal system, and our courts seem to encourage this behavior. How often have you picked up your newspaper only to see banner headlines announcing a large award to a plaintiff because of injury allegedly caused by a medical professional? It sometimes appears that our courts do not make a distinction between a imaloccurrence' (a risk associated with a particular treatment) and malpractice, and the public's perception of 46someone must pay" is further encouraged.

Pressure from the Plaintiff's Bar

Plaintiff attorneys also play a role in this "lottery system." How often do you hear advertisements from attorneys on television, advising the public that they have a right to collect damages if injured by a medical practitioner, advising them that if their children are found to have learning disabilities upon starting school, they can sue the practitioner who delivered the child?

Nurse Practice Acts

Recognizing that increasingly nurses are returning to school to obtain advanced degrees, that they are specializing in specific fields of practice, and that they are assuming more of a leadership role in healthcare delivery, state laws regulating nursing practice have increasingly recognized instances in which nurses are held legally accountable for exercising judgment independent of the physician. This is a positive for the profession, but you must be aware that along with increased responsibility and recognition comes increased exposure to liability.

Transfer of Risk

How do healthcare professionals manage their exposures to liability? The most common means is to purchase professional liability insurance. Liability for one's own acts cannot be transferred. What can be transferred is financial responsibility for damage awards (indemnity) and the legal fees incurred in determining what those damages are (defense). Consider this: generally, the annual premium for professional liability insurance is modest. Whether there has been true liability or not, legal fees alone may cost tens of thousands of dollars to prove that there was no negligence or malpractice. In purchasing insurance then, a professional makes a decision that it is worth spending a little to potentially save a lot.

To Purchase or Not to Purchase, That Is the Question

Many nurses believe that if they purchase professional liability insurance, they will increase their chances of being named in a malpractice suit. Many employers encourage this notion, as it is easier and more economical for an employer to manage a liability claim if the interests of individual employees are not being individually protected. The fact is, however, that most. lawsuits are filed before a plaintiff's attorney has any knowledge of whether a defendant has insurance or not. It is only during the discovery phase that this information is learned. And, in today's world, the plaintiff's attorney will name everyone who is remotely connected to a patient's care in order to have the largest sum of money available as possible to satisfy a damage award. If you have signed the chart, you will probably be named, even if the care provided is tangential to the events which actually caused the injury.

Other nurses believe that their employer's professional liability insurance provides all of the coverage needed. While this is certainly true in the majority of cases, there may be instances in which the interests of an individual may be in conflict with that of the employer. In fact, if the event leading to a malpractice claim was contrary to the policies and protocols established by the employer and the employer is sued, the employer can file a claim against the practitioner to recover awarded damages and attorney fees.

A third reason for considering the purchase of personal professional liability protection is for acts performed outside of the scope of employment. As an example, if a nurse accepts a moonlighting position, a full-time employer's insurance plan will not cover any adverse events. Nurses are commonly called upon by friends, neighbors, and relatives to assess a medical situation and to provide care or to suggest a course of action. If erroneous advice or care is given, the nurse can be sued for the resulting injury. Again, the employer's policy would not respond as the event did not occur in the course of employment activities; the nurse would be personally liable for all resulting expenses. And what about Good Samaritan acts such as stopping to assist in an automobile accident or attending to a person who falls on the street? While most states have Good Samaritan statutes which prevent making a claim against an individual who assists another without being remunerated for care given in an emergency situation, individual events such as a claim for gross negligence could waive the protection afforded by such a statute. And, furthermore, these statutes, although providing some protection against loss, do not protect against being sued and incurring the cost of defense.

If, after understanding the limitations of employer supplied liability insurance, a nurse makes an informed decision to rely on this risk transfer vehicle, he/she should investigate the nature of the policy/plan affording the protection. It might also be advisable to request a copy of your employer's policy/plan and have it reviewed by an insurance professional.

Purchasing Professional Liability Insurance

If you choose to purchase your own individual professional liability insurance policy, there are several things you should consider in selecting the company to insure you.

The reason you have chosen to transfer your personal financial risk is to mitigate financial devastation should you cause or be accused of causing injury to another as a result of your professional service or judgment. Generally, the coverage provided by a professional liability policy is fairly standard: the insurance company agrees to defend you if you are named in a claim resulting from an adverse event, pay the legal fees associated with such defense, and pay damages up to the limits of coverage which you have selected if you are found negligent. But there are provisions in each insurance policy which gives each insurance company latitude in how its obligations to you are satisfied.

One of the most important things to consider is the policy's settlement provision. All nurses' professional liability insurance policies require that the insurer provide and pay for your defense and pay damages. However, the insurer has latitude in determining how these duties will be honored. Some companies retain the right, with no input from you, to settle a claim as it deems appropriate. In this instance, a decision for claims settlement may be based upon monetary considerations only (i.e., less costly for the company to settle than to defend), regardless of the effect on your career or your professional reputation. It therefore becomes important to seek out a professional liability insurer who will consult with you in the settlement process and who may not settle without your expressed written consent. This allows you to be a participant, not a bystander, in the claims adjudication process.

Consider the insurance company's experience in providing this coverage. Those companies with a long history of offering professional liability coverage to healthcare professionals are probably your best option. All companies, irrespective of the product or service, look to expand and diversify their offerings to consumers. This includes insurance companies as well. Neophytes in any business must learn as they go, modifying and streamlining, re-engineering as "bugs" are discovered before they become expert in something new.

An insurance company experienced in providing medical malpractice coverage generally works with a panel of attorneys with proven expertise in healthcare-related malpractice claims. These attorneys understand the investigative process, understand the operations of the healthcare delivery system, and work with a network of healthcare professionals to assist in the assessment of the medical facts. They potentially have handled claims with similar allegations and events and, from a historical perspective, can advise you of the wisest course of action.

The financial stability of the chosen insurance mechanism is of utmost importance. Medical professional liability claims have a long "tail" which means that it may be years, after an adverse event has occurred, until a claim is made. States have varying "Statutes of Limitations," the period of time following an adverse event in which the injured party can make a claim; however, there are various reasons a judge could choose to "toll" the statute (allow a claim to be made after the Statute of Limitations has expired). Concealment of the injury by the professional delivering care, foreign objects left in the body cavity which are not discovered until years later, and injury to minors are all reasons to toll the statute.. Thus, it is easy to see why financial stability is of critical importance; you want your insurer to be there for you in a claims situation, even if it occurs years after the event. Many Risk Retention Groups, a form of self-insurance, have become financially impaired and dissolved. Financial impairment is not limited to self-insurance plans or Risk Retention Groups. In the past decade, several insurance companies, generally small specialty companies formed to insure a specific group of professionals, have ceased operations because state regulators of insurance have found them to be insolvent. All insurance companies are rated by A.M. Best Co., which assigns a letter grade to signify the financial health of the company, with A++ being the best rating possible.

Occurrence or Claims-made Coverage

The most common form of coverage for staff nurses remains occurrence; however, some advanced practice specialties, most notably nurse-midwifery and anesthesiology, are generally insured on a claims-made form. Both forms of coverage are the same in that the insurance company has the duty and the obligation to defend claims and pay damages. The difference lies in which policy applies at the time the claim is made.

With occurrence coverage, the policy in effect at the time the adverse event occurred is the policy that responds. The advantage of this form of coverage is knowing that you will be afforded coverage even if a claim for damages is not made until years later. The disadvantage is that the coverage terms and conditions and the limits of coverage selected, maybe years earlier, are those that apply; therefore, protection may be inadequate. In the early 1970s, medical malpractice awards were small in comparison to those awarded today. Physicians and surgeons commonly carried limits of $25,000 for each claim, and nurses did not concern themselves with insuring their personal liability; claims against nurses were a rarity. Claims-made coverage did not exist. Let's say that an obstetrician was sued today for a "bad baby" boom in the early 70s. Because the obstetrician had an occurrence policy, the total coverage limit available would be $25,000, hardly sufficient to cover the monetary awards made today. The obstetrician would then be personally responsible for any award in excess of that $25,000.

With claims-made coverage, the adverse event must occur and the claim must be made during the policy period. The advantage to this form of coverage is that current terms and conditions and current limits of coverage would respond to the claim. The disadvantage of claims-made coverage is the need to purchase extended reporting period coverage once you cease practicing in order to be adequately protected for claims made in the future for events that occur today. Purchasing extended reporting period coverage allows a professional to continue coverage for events that occurred during the coverage period once the policy is canceled or non-renewed. It might be advisable for a professional to explore tail funding mechanisms, since the early years of claims-made coverage are generally less expensive than occurrence coverage, so that the purchase of extended reporting coverage will not present a financial burden.

Your Obligations to the Insurance Company

An insurance policy is basically a two-party contract. As in any contract, both parties have certain obligations. The insurance company is obligated to defend you in the event of a claim or suit and to pay damages within the selected coverage limits. You are obligated to be truthful in your application to the company for coverage, to pay your premium when due, and to comply with the Conditions of Coverage as stated in the policy. One of these conditions is to notify the company as soon as possible if you are involved in an adverse event.

Know What's Covered

It is important to understand the limitations of the coverage provided. All insurance policies contain specific exclusions from coverage, and they vary from insurer to insurer. You must read your policy to determine what is covered and what is excluded; however, all insurance policies exclude criminal acts. It is illegal for an insurance company to provide insurance for events which are against public policy.

Summary

Changes in healthcare delivery, a more litigious society, and increased responsibility and accountability for nursing practice yield greater exposure to liability risk. While nurses cannot transfer their accountability and responsibility for nursing practice to another, they can transfer financial risk for damages and legal fees through the purchase of professional liability insurance. When purchasing liability insurance, the nurse should determine what the policy covers and what he/she is responsible for under the terms of the policy. The nurse should also determine coverage provided, if any, by an employer's policy.

Judith Cipriano is Director of Product Development, Kirke -Van Orsdel, Inc., Maginnis and Associates Division, Chicago, Illinois.

Updated Selected References: 1999 through June 2001

Note: These references are not part of the independent study module, but are provided to you as suggestions for additional reading.

Rotarius, T., Liberman, A. (September 2000). Professional liability insurance for health care organizations--several significant considerations. Health Care Manager, 19 (1), 59-64.

Showers, J.L. (February 2000). What you need to know about negligence lawsuits. Nursing 2000 30 (2), 45-9.