How Important is Liability Insurance?

Liability insurance is very important. Why? Consider the purpose of liability insurance. The overall purpose of liability insurance is to spread the risk of economic loss among members of a group who have common shared risk. Individually, the primary objective is to protect your assets in the event of a judgment or settlement in favor of the claimant. Liability Insurance gives peace of mind.

An employee works for an employer by contrast the an independent contractor is a person who is self-employed and who enters into contracts to provide professional services to various entities such as medical facilities, doctors’ offices, and/or individual clients. A health care professional who is an independent contractor most definitely should obtain liability insurance. In general, these entities have no liability for the acts or omissions of an independent contractor unless the entity can be found directly liable. An employer obtains professional liability insurance to protect its own interest. With respect to its liability for the negligent acts of an employee or independent contractor, the employer seeks to protect itself against claims.

At the beginning of the policy form, there is usually a statement that is a claims-made or an occurrence basis policy. Claims-Made policy is a type of professional liability insurance policy that covers injuries/damages only if the injury occurs in the policy period and only if the claim is reported or filed with the insurance company during the policy period.

The Occurrence basis policy is a professional liability insurance policy that covers injuries/ damages that occur during the period covered by the policy even though the claim may be reported or filed outside the policy period. The differences between Occurrence and a Claims-Made Liability Policies are not as simple as a dictionary definition would imply. To get the insurance meaning of each term, one need only consult the definitions section of their policy; but that still doesn't tell the whole story. Like any policy, the Claims-Made form evolved out of necessity.

For many years the Liability Coverage standard was Occurrence, a term defined, argued over and litigated, as most coverage issues are, until insurance companies had a clear idea of where they stood. But in the seventies and eighties, as plaintiffs initiated numerous asbestos, chemical exposure, toxic waste dump and other huge bodies of cases with multiple injuries and damages over long periods of time, ongoing battles began as to how best to interpret the term Occurrence.

Before purchasing any insurance policy you must determine what protection a professional liability policy provides. It is wise to obtain a sample policy and discuss any question with the insurance agent. When the policy is issued, the professional should read the entire policy to be sure that it provides the coverage discussed with the agent.

Even the most proficient and careful practitioners can be sued when there is not wrongful act or neglect on their part. Having a liability policy ensures that professionals are not subject to the possible economic disaster that can result in defending a claim or having a judgment awarded against them. Yes, liability insurance is very important.

Reference: Legal and Ethical Issues in Health Occupations Chapter 3 -Tonia Dandry Aiken