The health care industry, including nonprofit home health care and hospice providers, faces a high level of scrutiny and regulation with emerging risks that increase the potential for lawsuits against directors and officers. This jeopardizes the assets of both the organization and individual board members. Lawsuits can be filed against directors and officers from attorneys general, providers, patients and customers, creditors, regulators, employees, competitors, and the organization itself.
Claims may include allegations of breach of fiduciary duty, discrimination and other employment-related wrongdoing, conflicts of interest, or failure to comply with regulations, among others.
A board of directors has three primary legal duties:
- Duty of Care: Ensure prudent use of all assets, including the facility, people, and good will.
- Duty of Loyalty: Ensure activities and transactions are advancing the organization’s mission, recognize and disclose conflicts of interest, and make decisions that are in the best interest of the organization, not in the best interest of the individual board member.
- Duty of Obedience: Obey applicable laws and regulations, follow the organization’s own bylaws, and adhere to its stated corporate purposes/mission.
To protect the health care entity and its board members against financial losses from management liability-related disputes and lawsuits, Directors & Officers Liability (D&O) insurance is critical. A D&O policy can be designed to provide three types of coverages:
- Side A: Pays directors and officers directly for defense costs and liability assessments if the organization is not going to indemnify them.
- Side B: Covers reimbursement of the organization when it indemnifies its directors’ and officers’ costs in a liability action allowable under the organization’s corporate documents or the law.
- Side C: Insures the organization for claims that it committed wrongdoing.
D&O policies differ in their terms and conditions, how a claim is triggered, and any exclusions that exist. It’s important that insureds understand what is and isn’t covered in the policy.
Risk Management to Minimize Exposures
Effective risk management is also crucial for health care organizations to minimize their D&O exposures and protect themselves and their directors and officers from legal and financial liability. Here are some steps all organizations should adopt:
- Create and implement comprehensive D&O risk management policies and procedures, such as BIPA compliance, cybersecurity, and health care regulations. Review these policies and procedures on a regular basis to ensure they remain effective and up to date.
- Train directors and officers to make sure they understand their legal and ethical responsibilities, as well as the organization’s policies and procedures. This can help to reduce the risk of unintentional violations while also raising awareness of potential D&O exposures.
- Conduct regular risk assessments to identify and evaluate potential D&O exposures so that risks can be identified and mitigated proactively.
- Create a compliance and accountability culture, with clear lines of communication and reporting between directors and officers, management, and staff. Encourage an open and transparent reporting culture so that potential risks and exposures can be identified and addressed before they become serious.
About One80 Intermediaries/Manchester Specialty:
Manchester Specialty, a division of One80 Intermediaries, is a national specialty underwriting and insurance program management firm, licensed to do business as a program administrator in all 50 states and DC. Our agent/broker partners and their Allied Health clients look to us for our expertise, broad product capability, commitment to the market, and the quality and stability of our insurance programs for Home Care, Medical Staffing, Allied Health and Human Services organizations. For more information, call us toll-free 1-855-972-9399, or visit Allied Health Firms – One80 Intermediaries.