Agents E&O Prevention

Insuring nursing homes

Fine-tune your risk management and communication skills to address the unique exposures of this class of business

By Curtis M. Pearsall, CPCU, AIAF, CPIA

If your agency has targeted nursing homes and assisted living centers for some time, you no doubt agree that these risks require a tremendous amount of expertise and due diligence. Nursing homes/assisted living centers seem to be one of those classes with a higher likelihood of a loss occurring. It is extremely easy to find articles or TV ads indicating that this class of business is heavily targeted by the legal profession. The focus primarily involves the professional liability side, but other lines of business have significant potential, too.

While nursing homes and assisted living centers come in various sizes, the coverages needed are fairly consistent. One key is that insuring nursing homes requires a high degree of expertise and a solid commitment/attention to detail. They present some unique exposures and some significant severity potential.

If this is an area you are going to target, education and training are crucial—-so it is strongly suggested that the staff (producers, account execs, CSRs, etc.) handling this class receive all of the training necessary to ensure their competency.

Not for the faint of heart

Because this can be a tough class of business, you will probably find a more limited number of carriers for this type of risk. I strongly recommend dealing with carriers that specialize in this class of business as it is not one for the faint of heart.

However, as with many classes of business, there are always carriers looking to get into new segments. Ask the carriers what their commitment is to this market, how many risks they insure, how well they understand the exposures and what is unique to their product offering.

Each carrier will probably have its own specific set of apps you will need when you make your personal visit to the risk.

While liability is probably more of the major issue, property losses do occur. Ensuring that property values are current is tremendously important and securing a professional appraisal is highly recommended. Check with the carrier you are working with as they may be able to assist in this area. In addition, crime coverage is vital, not only for the nursing home itself, but for the property/funds of the residents.

To avoid any claim disputes, the general liability and professional liability should be with the same carrier. Since professional liability forms can vary greatly, be certain to understand this coverage completely—and don’t hesitate to ask the carrier how its form stacks up against the incumbent.

The defense portion of the professional liability coverage should be “in addition to the limit of liability” so as not to impair the limit available for any judgments. Also, since there will probably be a deductible/self-insured retention (SIR) on this part of the coverage, discuss this at length with the nursing home, making sure they understand exactly how it works. Including an explanation on the application of the deductible/SIR in the proposal is advised.

The following is a claim where this issue was front and center:

The nursing home alleged that when the agent wrote a replacement policy for nursing home operations, the agent failed to advise them that the policy was written with a $125,000 SIR; the previous policy had no SIR. Damages for various liability claims totaled around $2 million during the policy period. Although the agent advised that the client was provided a proposal which indicated the presence of the SIR, the client produced a document which reflected no SIR. The evidence clearly favored the nursing home. The case was settled for $1 million.

Attention to detail

There has been a multitude of articles written detailing the activities of nursing homes in providing a quality day for their residents. For example, while singing groups may not present much of a concern, some nursing homes allow groups to bring in pets to entertain the residents. Make sure you have a discussion with the nursing home regarding its plans in this area. The carrier may exclude some of these activities or want to be aware of them ahead of time, so be alert to any endorsements to make sure the nursing home knows how the carrier handles this issue.

If your agency is targeting this class, strong consideration should be given to developing solid loss control/risk management expertise. This may include assistance with OSHA-related issues, inspections and regulatory compliance, numerous educational seminars sponsored by various industry leaders, etc.

A nursing home or assisted living center is not your normal, everyday account and presents significant loss potential. Thus, when insuring one, your attention to detail in gathering the necessary information and in explaining it to your client is key.

The author
Curtis M. Pearsall, CPCU, AIAF, CPIA, is a special consultant to the Utica National E&O Program.