Home Health Care D&O Insurance Needs Are Rising Along With Industry Growth

As the baby boomer population ages, the need for home care is expected to grow substantially. By 2027, about 67.5 million seniors will live in the United States, and the country will need about 6.1 million long-term care workers, around 2.3 million more than we have today. The home health care and hospice market will grow alongside that long-term care need. From physical and occupational therapists who make home calls to generalists who provide care management and simple daily assistance, home care firms will experience a booming business in both the long-term care and short-term care spaces.

That increase in business will be accompanied by increasing demands on nonprofits and their board of directors and executive management, who will have to oversee and/or implement massive hiring and training programs as well as vetting of 1099 contractors who supplement services the firms themselves either don’t provide or don’t have enough staff to handle. Each of these benefits of business growth also brings a new liability exposure. While best practices go a long way at preventing errors, negligence, and wrongful acts, even excellent nonprofit home health care providers are not immune from allegations of wrongdoing and the need for defense.

Management Liability for Home Health Care Firms is one important way nonprofits in the hospice and home care industry can protect their leadership should an accusation be filed against them. This includes indirect accusations of abuse of patients as well as mismanagement of funds or of the organization itself. Some of these claims can end up in very expensive and complicated  lawsuits. Claims of mishandling finances—investments, donations, employee retirement funds, etc.—can put directors and officers of nonprofit organizations in a position that demands costly defense and even possible recompense.

D&O Insurance for Nonprofits

The role of Directors and Officers (D&O) Liability insurance for nonprofit health care and hospice firms cannot be overstated, because there are innocent parties who can be drawn into lawsuits when bad actions are discovered. A board’s costs to prove its overall integrity, individual directors’ costs to defend their good name, and fees for the nonprofit and its managing officers to comply with regulatory demands, legal discovery and attorneys fees could be financially devastating without adequate D&O Liability insurance for nonprofit organizations. Securing adequate D&O is imperative in the process of attracting and retaining quality board members, as they are potentially putting their personal reputation (and even assets) on the line by serving on a nonprofit board.  

D&O insurance can protect against costs associated with allegations of wrongful acts associated with governance decisions and fiduciary failures. Additionally, nonprofit organizations face allegations of employment practices violations where a leader of the organization is accused of mistreating an employee or prospective employee. It is not only critical that a nonprofit carry D&O coverage but also a separate Employment Practices Liability (EPL) insurance policy to protect against allegations of discrimination, harassment, wrongful termination and other employment-related issues. Note: About 94% of claims dollars spent under D&O/EPL coverage arise from employment practices complaints, according to data reported in 2015 from the Nonprofits Insurance Alliance Group. Out of those dollars, 80% of the payouts are spent on claims regarding termination or constructive discharge.

In most D&O Liability cases, attorneys fees and indemnity payments for settlements or losses in court comprise the bulk of the costs, but audits, searching for and compiling documents, and other investigation and document production fees can run high as well. Since policies are worded differently, insurance agents and brokers need to be very specific with insureds on just what is covered. Defense costs may be covered, but penalties and liability for willful wrongful acts usually are not.

Additionally, nonprofits need to be aware that most D&O coverage entitles the insurer to choose defense lawyers and to negotiate a settlement that, if the insured rejects, could end the insurer’s duty to pay. Communication about all the complex aspects of D&O Liability policies should be thorough and documented for future reference.

Inside D&O

Briefly, there are three types of D&O Liability insurance: Side A coverage, under which the insurer would pay directors and officers directly for defense costs and liability assessments if they are not going to be indemnified by the organization; Side B coverage, which covers reimbursement of the organization when it indemnifies its directors and officers’ costs that are allowable under the organization’s corporate documents or by law in a liability action; and Side C coverage, which insures the organization itself for claims it engaged in wrongful acts. All three coverages may be provided to an organization and its board and management leadership.

Finally, but not exhaustively, we want to remind you that there are exclusions to what is covered by D&O insurance. Knowledge of facts or circumstances that could lead to a claim that policyholders had before securing coverage could nullify protection. Policies may contain severability clauses so only the knowing parties are affected, but an agent or broker needs to go through this exclusion very carefully with each prospective insured to make sure needed coverage isn’t being sacrificed unwittingly. Sometimes this exclusion is affected by the application process, meaning separate applications versus a joint application for coverage, so exploring the deep details needs to start at the earliest possible moment of the insured-agent conversation.

There are dozens of other exclusions and considerations that need to be dealt with when securing Directors and Officers Liability insurance for not-for-profit organizations. Reliance on an agent or broker who specializes in this coverage is encouraged since no D&O policy is boilerplate.

At Manchester Specialty Programs, we understand that no two home care non-profits are the same, and that means that their insurance needs will differ as well. We specialize in designing a comprehensive Management Liability program that not only covers the needs of directors and officers, but also home care employment practices liability risks, which we discuss here. Our coverage protects the financial health of an organization. For more information about our products and services, please contact us at (802)-472-1500.

Sources: NonProfit Quarterly, American Bar Association