Caption Corner Part 6 – The 3 H’s of Insurance
As licensed practitioners, there is no doubt that you should have a professional liability insurance policy to cover you for malpractice, a cyber or data breach insurance policy to insure you for HIPAA violations arising from third party information breach, and a general liability insurance policy covering your office, fire perils, bodily injury, and third party property.
This month we will continue to discuss some of the most important liability insurance terms that you need to know.
In Part 1 published in December 2016, we discussed the following:
Insurance Agent or Insurance Agency; Hazards and Perils; Limits and Sub-limits; and Insurance Claim.
In Part 2 published in January 2017, we discussed the four D’s of insurance:
Declarations; Deductibles; Direct Writer; and Dynamic Risk.
In Part 3 published in February 2017 issue, we discussed the four E’s of insurance:
Endorsements; Exclusions; Effective Date; and Extended Reporting Period.
In Part 4 published in March 2017 issue, we discussed the four Fs of insurance:
Form, Fraud, First-Party Risk, and First-Named.
In Part 5 published in this April 2017 issue, we discussed the three Gs of insurance:
General Liability, Group-Owned Captive, and Guaranty Fund.
In Part 6 published in this May 2017 issue, we discuss the three Hs of insurance:
- Hold Harmless Agreement
- Hard Market
Golfers often call sand traps and ponds near the fairway “hazards”. In the golf world, these are conditions that expose the player to increased possibility of damage to their stroke score. If a golfer hits a ball into the pond hazard, it is unplayable and a 1 stroke penalty is applied as damages. The same thing holds true for insureds.
“Hazards” in the insurance world, are circumstances that increase the frequency probability of a loss, or loss severity. For example, if you have a lot of clients visiting your office and your partner has a service dog present in the office all day, there is an increased hazard that the dog may bite, scratch, or knock over a client or a visitor. This actually occurs very frequently.
That is why you need a General Liability insurance policy in force because Professional Liability policies do not always cover damages arising from events that are not related to Professional Services as defined in the policy contract. If you are providing social worker Professional Services and your psychologist partner with a separate practice and who owns the dog that bit your client shares your office, you will need a General Liability policy for yourself, and most definitely, you will have to look for legal defense and relief from your partners’ General Liability policy.
A common hazard in a General Liability policy is fire legal limit. When you shop for a General Liability policy make sure that there are no fire sub-limits and no deductibles. Just about all carriers sneak these hidden limits in their policy contracts, but not the NASW RRG. The NASW RRG pays General Liability fire related benefits from the first dollar with no deductibles and pays up to the $1,000,000 limit and $3,000,000 aggregate. All of the other insurance carrier general liability policies only cover a single fire per policy period year.
Hold Harmless Agreement
Although these contracts are more frequent in the construction industry, the hold harmless indemnity provision is the core aspect of all insurance contracts. The insurance contract with the indemnification that it contains, is the instrument that shifts the risk from the insured to the insurer, whereby the insurance carrier is contractually obligated to respond to certain named legal liabilities of the insured party. In essence, the insurance carrier indemnifies the insured for a stated list of perils and hazards up to certain limits and sub-limits.
The critical task for the insured when buying an insurance policy is to read and study the actual insurance policy contract to fully understand what risks are being shifted to the insurance carrier, and what risks remain with the buyer. Many times, the buyer does not bother reading the insurance policy contract or simply does not understand the meaning.
When shopping for an insurance policy, a good way to determine your risk and to determine if you are actually covered is to think about your work activities and what could go wrong. Then, for each possible event that you foresee, write down a few key facts that could arise from each, and apply the facts and circumstances of these fictional scenarios to your insurance policy contract to “test” the coverage. Regarding most insurance policies, you will no doubt find language vagueness and subjectivity open to interpretation which is not reassuring at all. For clarification, feel free to ask your insurance agent, or call the NASW ASI Helpline to speak with NASW Assurance Services insurance professionals who will help you navigate the situation before you buy any insurance policy.
You may overhear insurance people talk about hard markets and soft markets. In the insurance world, a “hard market” is simply insurance speak that means there are more buyers than sellers willing to sell certain insurance policy coverages. In other words, an economist in a hard market would say that there are high demand and low supply, so, therefore, prices will spike.
The insurance industry, particularly the property and casualty segment, moves along in continuous economic cycles. A soft cycle occurs when premiums are low, insurance company capital surplus bases are high to cover insurance claims losses, and when competition among insurance carriers is high. Often times naive insurers or desperate insurers who need to write more premium for competitive purposes, lower their premium rates and add more policy benefits in order to attract customers. They also write more risky people who should not be covered or renewed in the first place.
Eventually, during the soft cycle, claims losses increase in frequency and often times in severity from these people who never should have been sold the insurance coverage, to begin with. The insufficient premium was collected during the soft cycle and claims losses piled up. So corrective actions begin, which include policy terminations of high-risk people, premium increases, and policy benefit reductions. Some insurance carriers even impose a moratorium on selling certain insurance lines.
This is why it is important to understand the quality of the insurance company that you buy your insurance policies from. It is always best to buy insurance from a reinsured Risk Retention Group where the insureds actually own the company and there is no need to rely on the insufficient State Guaranty Funds which are totally inadequate. They all are exhausted at about $300,000 in claims loss coverage, and many are exhausted well below that depending on the state. The NASW Risk Retention Group is backed by the A. M. Best A- rated NASW Insurance Company, Lloyds’ London, and by SwissRE reinsurance companies.
Published May 2017