Attention Practice Owners: Especially Now, Your Business Entity Needs Malpractice Insurance Coverage
Among the concerns about the impact of coronavirus, many dentists wonder if their practices will be covered for claims related to COVID-19. At Professional Solutions, we want to assure you that it is our intent to cover allegations of malpractice related to COVID-19.*
Posted in Property Insurance on Monday, May 18, 2020
That is why we want to remind you about the importance of having entity coverage if you have filed your practice with your secretary of state.
Even during normal times, an increasing number of lawsuits are including the corporate entities of dentists in malpractice allegations in addition to the doctors themselves. The reason? Plaintiff attorneys often include as many people/entities in the allegation as possible to try and improve their odds of winning the case.
This trend has become a concern because many doctors don’t obtain entity professional liability (malpractice) coverage, thinking it’s not necessary. And without entity coverage, some doctors end up paying for defense costs and damages out of their own pockets.
Consider how entity coverage may have benefited doctors in the following examples:**
Dr. Brett Baker considers himself a “sole practitioner,” as he is the only licensed dentist in his practice. His accountant advised him to incorporate for tax purposes, and his “tax” corporation name is Bayside Dentistry, PC. He has individual malpractice insurance as a dentist, but he doesn’t have entity malpractice coverage for his professional corporation (PC) as he has not requested that coverage.
He has two employees, an administrative person and a licensed hygienist. After a patient is allegedly injured by the hygienist’s actions, the patient filed a lawsuit naming only the corporation, Bayside Dentistry, PC.
Since Dr. Baker has no entity malpractice coverage, there would be no insurance coverage for this claim. As a result, Dr. Baker would have to fund his own defense and any verdict rendered against his practice out of his own pocket.
It’s worth noting that dentists are responsible for the actions of their staff, due to the legal concept of vicarious liability. This concept is based on the legal doctrine of “respondeat superior,” which means “let the master answer” for the actions of the employee performed in the course of employment.
Another take on the situation would be if Dr. Baker did not have any employees but instead rented space to independent dentists. Would Dr. Baker still need entity malpractice coverage since the other dentists are not his employees? Potentially, yes. Though it may seem like Dr. Baker would not be responsible for the professional services rendered by independent dentists, he could be held liable in some instances.
For example, if the public perceived a relationship between the independent dentists and the owner of the practice, a judge could rule that Dr. Baker, as the owner, was responsible for the professional actions of the independent dentists. While this allegation may eventually be overturned by legal counsel, the expense of defending and preparing legal arguments could be costly for Dr. Baker.
Multiple Dentists in a Practice
Brett Baker, DDS, owns Baker Family Dentistry, LLC, which employs other dentists. Though all the dentists carry individual malpractice insurance, the practice itself—Baker Family Dentistry LLC—is not named on Dr. Baker’s policy. Therefore, any actions against the Limited Liability Corporation (LLC) are not covered.
Consider what would happen if one of the associate dentists, Dr. Clark, received a claim from a patient alleging injures during treatment and a lawsuit ensued naming Dr. Clark and Baker Family Dentistry, LLC. Because Dr. Clark had individual malpractice insurance, the doctor would be covered for the lawsuit. However, the practice—Baker Family Dentistry, LLC—would not be covered for alleged malpractice because it was not named on the policy.
The practice owner, Brett Baker, DDS, would then be responsible for paying defense costs and any judgments against the practice.
In a variation of the above scenario, let’s say associate dentist Dr. Clark missed a payment and let his policy lapse. In this instance, there would not be malpractice insurance coverage for Dr. Clark nor for Baker Family Dental, LLC. In many instances where doctors share the care of patients during vacations or days off, multiple dentists can be named in a lawsuit involving one patient. This is why having all doctors insured by the same company is the best practice.
Dr. Brett Baker retired from practicing dentistry.
Since he no longer treats patients, he cancelled his malpractice coverage. However, he still owns and manages his clinic, Baker Family Dentistry, LLC, which employs two dentists.
Dr. Baker pays for these doctors’ malpractice coverage. If allegations arise that a patient was injured as a result of one of the dentists’ treatment, a lawsuit would likely name the employed dentists, as well as Baker Family Dentistry, LLC. In this situation, there would be no malpractice coverage for the corporation, and Dr. Baker would be responsible for funding the practice’s defense.
Why You Need Entity Coverage Today
Many dentists do not realize that the legal formation of a corporation may enable legal action against that very entity. However, one thing is clear: If you have any degree of ownership in a practice entity, you need entity malpractice coverage (regardless of your legal structure) in addition to your individual malpractice policy.
Additionally, it is easy to confuse what your general liability, also known as your business owners’ policy (BOP), covers versus what your professional liability (malpractice insurance) covers. An easy way to distinguish between these coverages is:
- Your professional liability policy covers actions that require your dental education. Therefore, any professional services you render or fail to render (as well as duties performed by employees) that are consistent with your state’s dental practice act will fall under your malpractice policy. Your professional corporation is an extension of you.
- Any other situations that may arise, such as a slip and fall or property damage, would be covered under your general liability, or BOP, policy.
Even if you are a sole practitioner, if you have filed any entity paperwork with your secretary of state’s office, your practice may be named in a legal action.
Available Entity Coverage Options
Professional Solutions Insurance Company (PSIC) offers a variety of entity malpractice coverage options for different practice types. For example, shared limits of liability are available at no additional charge.*** This means if you are the owner of a dental entity, e.g., an LLC, partnership or corporation, you can share your personal limits of liability with the practice entity.
Another entity coverage option is separate limits of liability, which can be beneficial to protect you against claims that arise from professional services provided by you, your professional staff (such your hygienist) and any unlicensed ancillary personnel. There is an additional premium for separate limits of liability. Contact your agent for coverage questions and rates.
To better protect you and your practice, contact your agent or PSIC at 800-864-8026. We’ll review your policy and analyze your situation, explain your options, and add professional entity coverage to your policy if desired.
* Your PSIC policy only provides coverage for professional negligence. It is PSIC’s intent to cover allegations of malpractice related to COVID-19. PSIC does not plan to restrict coverage for patient claims related to the pandemic. However, the policy is subject to generally applicable terms and conditions. Ultimately, any coverage determination will be based on the specific facts and allegations of the claim.
** Examples are based on claims department experience with these types of allegations, but do not represent actual case files.
*** Shared limits are not available in all states. Call for details.