Transcript Question (1)

Presentation
Professional Liability
(excluding D&O)
St. John’s University
Wednesday, September 30
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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.
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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.
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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.
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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.
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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 (1)
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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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.
• Or did it. What was the occurrence?
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Question
Is accounting a discipline or a profession?
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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.
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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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Negligence
Negligence is the most common basis for 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.
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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.
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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.
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Question (3)
Who will the person sue for damages?
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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?
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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.
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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?
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Answer (1)
The lower court awarded dentist Robert Woo
$750,000 from Fireman's Fund Insurance.
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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.
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Presentation
Errors and Omissions
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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
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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
Assets
Cash
Securities
Toxic Assets
Total
300B
500B
50B
850B
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Debt & Capital
Debt
400B
Capital
450B
Total
850B
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Balance Sheet after One Week
Assets
Cash
Securities
Toxic Assets
Total
299B
500B
50B
849B
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Debt & Capital
Debt
400B
Capital
449B
Total
849B
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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.
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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
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Question
The health care industry can purchase
professional liability insurance. Who are the
buyers of medical malpractice insurance?
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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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Presentation
Northeast Hospital Case Study
Professional Liability
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Hospital MedMal Coverage
• $5 million policy limit.
• $500,000 retention.
• No deductible.
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Physician MedMal Coverage
• $2.5 million policy limit.
• $500,000 retention.
• No deductibles.
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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.
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First Plaintiff Deposition
A retired doctor expert witness.
• Hospital should have procedures to recognize
an aneurysm.
• All three parties were negligent.
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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.
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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.
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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.
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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.
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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.
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Other Depositions
Six other individuals were questioned on various
aspects of the case.
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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.
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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.
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Exercise
• The trial will start in 14 days.
• Mrs. Sanders wants to settle for $6 million.
• Should PPIC agree?
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