Health Care Report: Y2K Insurance May Be A Protection Pipe Dream

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[This is the third of seven articles from the premiere issue of Prospective Risk Management In Healthcare. It is not available online. All usual disclaimers apply.]

Y2K Insurance May Be A Protection Pipe Dream

Risk managers beware: Even if your healthcare organization's insurance policies do not specifically exclude Year 2000 (Y2K) coverage, that doesn't mean your facility or system is in fact covered. Relying on the "same old reading" of your policy could leave your organization both uncovered and unaware of that fact, say legal and insurance experts.

Many insurers have filed and obtained approval in virtually every state for various forms of exclusionary endorsements for both property and liability policies, noted Sean Hanifin, Esq., of Washington, D.C.-based Ross, Dixon & Masback. But whether or not such exclusions are issued, most insurers do not plan to cover Y2K under standard policies because it is a foreseeable event, according to the New York-based Insurance Information Institute.

Lori Iwan, Esq., the partner in charge of the Y2K practice at Williams & Montgomery in Chicago, said the insurance industry's position of noncoverage is, "We never say in the policy that we cover the Year 2000--we didn't charge you for that risk, we cannot fund or underwrite that risk, and you in your application to us did not disclose the possibility that you might have claims arising out of the Year 2000 risk--a known, certain event."

Many insurers have issued exclusions anyway because they don't want to take a chance that a court will disagree with their position--thus implying Y2K had been covered initially, she said.

Caught In The Middle

The confusion created by these conflicting approaches means risk managers really need to review their organization's policies immediately with legal counsel and then "force the issue" with their insurance broker, said Iwan. "You need to commit your insurance company before you have an incident to clarify what they intend to cover and not cover. That really puts the insurance company on the spot, but I don't think they should get the benefit of ambiguity going into the year 2000."

Ask pointed, scenario-type questions, such as, "If we have a biomedical device--a respirator, for example--that fails on Jan. 1, 2000, and a patient dies, will you defend and indemnify that claim?" advised Iwan.

While all insurance coverage should be carefully evaluated, risk managers at for-profit healthcare organizations should pay special attention to directors and officers (D&O) insurance, added Dennis Gallitano, JD, co-chair of the information technology law practice at Rudnick & Wolfe in Chicago.

Shareholders could go after the directors and officers for negligence or improper action in connection with Y2K, especially in light of the Securities and Exchange Commission's reporting requirements for publicly traded companies. Such disclosure statements usually aren't covered under D&O insurance, he explained.

Risk managers might be able to negotiate a separate Y2K endorsement for their various policies, said Gallitano. But buying most Year 2000-specific insurance likely is cost-prohibitive to all but the largest organizations, said fellow attorney Iwan. "I understand that the cost of the policy is similar to the projected cost to remediate the Year 2000 problem."

Premiums can range from 65 percent to as high as 80 percent of the amount insured, according to the Insurance Information Institute. So, if a facility wanted $100 million of insurance, for example, it would have to fork over up to $80 million in premiums.

Western Reserve Care System, of Youngstown, Ohio, is banking on its Year 2000 remediation efforts to sidestep lawsuits and intends to go without specific Y2K insurance coverage due to the exorbitant costs of obtaining it, said director of risk management William Quinlan, RN, ARM, FASHRM.

"The one [carrier] that I got numbers on wouldn't quote you until you had a survey done by them that cost $70,000 for an organization our size [a four-hospital system]," he said. "So I'm assuming the premiums are in the hundreds of thousands of dollars, and right now, there's no way we can afford that."

Indeed, the few companies that offer separate Y2K policies, such as New York-based American International Group Inc., require and in-depth audit of an organization's compliance plans. So a healthcare organization's limited funds probably are better spent on performing compliance actions, which must be completed regardless of insurance status, noted Iwan.

-- Steve Hartsman (hartsman@ticon.net), February 18, 1999


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