Managed Care Organizations May Face Gaps in D&O Coverage

Because of new exclusions and restrictions imposed by some liability insurance carriers, managed care organizations may face gaps in their D&O (directors and officers) coverage.

Due to a number of high-profile lawsuits against company directors, some of which resulted in huge awards, many liability insurance carriers have increased the number of exclusions and are imposing new restrictions in their D&O coverage.

Exclusions are specific types of claims the policy will not cover. Typically, many policies have excluded coverage for employment, intellectual property and personal injury claims. Now many liability carriers are requiring organizations to purchase separate entity coverage, which covers a corporate entity's liability in shareholder lawsuits.

Retention levels (the deductible or amount to be paid by the insured), are also rising. Many carriers are requiring organizations to accept co-insurance, which means they will pay for 10-20 percent of a claim.

To avoid any surprises, all senior officers and directors should get a detailed explanation of what their D&O coverage does and does not provide and what their personal exposure may be.

MCOs can protect themselves by implementing sound risk management programs, identifying potential coverage gaps and obtaining bids from a wide range of carriers.

It is recommended MCOs include both D&O and E&O (errors and omissions) coverage. Traditional D&O protection does not address the most important managed care exposure area -- claims arising from the day-to-day management of the health care provided to members. For this coverage, E&O liability coverage comes into play. It protects organizations when allegations of management negligence are made, including issues such as vicarious liability, provider credentialing, peer review, provider selections, utilization review and claims processing.

All MCOs that perform credentialing, whether they are large health plans or small medical groups, should consider E&O coverage. Both D&O and E&O are considered specialized professional liability insurance policies and are usually not included in general commercial liability insurance.