Business insurance coverage every physician should have

April 1, 2015

Your biggest risk and greatest exposure as a physician is in the area of professional services. But liability also can arise when it comes to the business side of a medical practice, however, and it is in this area where other types of coverage become highly important.

In consultation with a reputable and knowledgeable general insurance agent, we encourage our clients to consider the following types of coverage:

Non-owner (hired) auto

Your practice may own automobiles used by the doctors, in which case it is natural to have a policy covering those vehicles.

However, coverage for employees sometimes is overlooked when they are using their personal automobiles to conduct business for the practice. Staff members handling bank deposits, errands, and other activities away from your practice can give rise to liability in the event of an accident.

Related:Malpractice insurance: Understanding the importance of coverage limits

Non-owner auto coverage protects you when your employee or a third party is injured while carrying out business duties for your practice. Standard coverage is typically $1 million and is coordinated with an umbrella policy. It is typical to identify specifically and limit the staff members who are permitted to run errands for the practice.

ERISA/fidelity bond

This is coverage specific to your practice’s retirement plan.

The Employee Retirement Income Security Act (ERISA) requires a plan sponsor to carry coverage for employee dishonesty with respect to the retirement plan’s assets.

The amount of required coverage is the lesser of $500,000 or 10% of plan assets. The policy covers those responsible for managing the plan in a fiduciary capacity as well as those who handle investment assets in the plan.

Employee dishonesty

This is another type of fidelity bond coverage.

This coverage is analogous to an ERISA bond, in that it provides protection in the event that a staff member steals or embezzles money or property from your practice. Often this coverage can be designed to satisfy the ERISA bond requirement via an endorsement.

In most medical practice settings, the potential for theft is present with respect to both accounts receivable and accounts payable. In general it is recommended to have base coverage of at least $100,000.

In addition to insurance, it is very important to establish good internal cash controls to reduce the possibility of an employee misappropriating practice assets.

Employee theft of sensitive customer data

This coverage, in the case of a medical practice, is typically and primarily designed to protect against the misappropriation of sensitive patient information.

In most cases It would also cover the situation of a non-employee hacker (sometimes referred to as a “cyber breach”) as well as the accidental interception of sensitive information, for example, in the case of a failed network firewall.

Coverage, particularly in the case of a cyber breach, typically extends to the injured party to provide assistance to recover from the incident such as restoring credit and other related identity theft repairs.

 

NEXT: Business overhead expenses

 

Employment practices

This type of coverage addresses human resource- related allegations such as wrongful termination and employee misconduct such as sexual harassment.

Coverage protects the physician owners as well as claims against staff (essentially covering those responsible for handling human resource-related issues.) Basic coverage is for damages, but separate coverage can also be secured for legal expenses involved with defending a claim.

Umbrella

This policy ties into the other types of coverage to protect against claims that exceed the limits of the other individual policies.

Related:Malpractice insurance considerations for employed physicians

An umbrella can extend coverage to gaps under other policies, such as covering the cost of legal expenses to defend a claim. Because this type of policy supplements other coverage, you will want enough to protect practice earnings, assets, and outstanding liabilities- enough, in other words, to recover from an event that might otherwise drain the assets of the practice.

Business overhead expense

This type of disability insurance is particularly helpful in a smaller practice setting and very important in the case of a solo practice.

If a physician is unable to work due to a disability or other issue, the insurance provides cash flow to continue paying overhead expenses such as payroll, rent, and utilities. The elimination period typically is fairly short, perhaps even 30 days, and the coverage does not usually go beyond a couple of years. The policy pays overhead expenses needed to keep the business running.

Life and disability (“key man”)

These are policies covering the life and ability to work for those in key positions.

For a medical practice, this would include the physician(s) and any other significant income-producing providers important to practice revenue.

Life and disability insurance for those in key positions are secured for the purpose of providing cash flow while the practice replaces the lost production. For practices with significant value, key man life and disability coverage is also important to provide cash to pay the estate of the deceased or acquire the ownership interest of a disabled physician.

If the practice must support a buyout payment without the help of insurance coverage, it can wind up in a position of double trouble since the lost production capacity hurts top-line revenue and the required buyout obligation is above and beyond normal overhead expense.

Robert C. Scroggins, JD, CPA, CHBC is a management consultant and principal with ScrogginsGrear, Inc., in Cincinnati, Ohio. Nick Bogan is vice president of Senour-Flaherty Insurance in Cincinnati, Ohio. Send your practice management questions to medec@advanstar.com.