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January 26, 2010 | dlpmagazine.com Web exclusive What insurance do labs really need?
January 26, 2010 | dlpmagazine.com
What insurance do labs really need?
We provide answers to some of the most common insurance-related questions.
by Renee Knight, Senior Editor
Photo: Image Source/Getty Images
The recent case against Lee Culp, CDT, served as an important reminder to dental lab owners that lab technicians can be sued. Yes, the case ultimately was dropped, but that doesn’t mean you can relax. Rather, it’s time to do some serious thinking about the type of liability insurance you need to have and then to make sure you have it.
If you’re not sure where to start, the National Association of Dental Laboratories is one place you can look to, Co-Executive Director Bennett Napier said. Someone at the NADL will sit down with you and explain
what kind of coverage you should look for and what questions you should ask, especially if you opt to go with an independent agent that might not be familiar with insurance needs specific to the lab industry. The NADL and even your state dental laboratory association can help get you started, but Napier said it’s very important to follow through and make sure you have the coverage you need.
“People still are taking a gamble,” Napier said. “With one big claim the legal fees could shut a small lab down. They don’t have a buffer. They don’t have the reserves.”
Even though times are tough, liability insurance isn’t the place to skimp. In fact, it’s one of the most important things for a lab of any size to have, Napier said. The policy premiums can be as low as $1,000 a year, which is well worth it if a lawsuit does come up.
The NADL works with Meadowbrook Insurance Group, an insurance company that specializes in the lab industry. We recently talked with David Cooper, Agency and Sales Support Manager for Meadowbrook, to help clear up some of the most common questions you have about insurance-particularly liability insurance. Here’s what he had to say:
DLP: What type of insurance do you recommend lab owners purchase and why?
Cooper: A dental lab can purchase insurance for just about anything. You can purchase insurance for your property, on your employees, on yourself, your customers, your vendors. When making decisions about what insurance to purchase, start by making a list.
Begin the list with the insurance required to purchase a dental lab in your area. Many states have laws that require a business to carry workers’ compensation based on the number of employees or size of payrolls. A licensed insurance professional or the state employment or insurance departments should be able to explain your responsibility to your employees in this regard.
If you owe money on your building, equipment or even lease a space in a building the financing provider likely will have insurance requirements as part of the contract. In regards to lease space, review the contract carefully. Look for who is responsible for improvements and betterments. Your insurance coverage should be able to respond to whatever your contractual responsibilities may be in any situation.
Most dental labs buy insurance for what is required and do not think about other possibilities. I suggest making a list of possible situations that could cause great financial loss or cause the lab to cease operations altogether. A large fire at your place or a major vendor, loss of key employees, lawsuit by an employee, employee theft and being sued by a customer all should be on your list. Take your list to your accountant, lawyer, business partners, spouse, and have them add to it. An insurance professional should take your list and explain what your current insurance policy(s) will cover or not cover for each situation on your list. The same insurance professional should make additions to the list and provide you a premium for covering any situations not currently covered. If that professional does not offer the coverage ask to be referred to a professional who does.
This will help you make insurance expense and dental lab practice decisions that will create a more efficient lab. You will be surprised by how many of your situations are covered in insurance policies designed specifically for dental labs. A lab also can add coverage to have situations covered by an insurance policy at very minimal cost. Do not wait for the situation to occur and find out an additional $20 premium could have covered a $20,000 financial loss.
After your first list is created and followed through on, review every 3-5 years with the appropriate professionals or any time you make a major change in your dental lab operations.
DLP: What is the difference between professional liability and product liability insurance?
Cooper: When professionals are hired, they are done so with the belief that they have the necessary expertise and knowledge to carry out the task to the best of their abilities. Added to that, there is a certain code of conduct they are expected to abide by while doing their jobs. When professionals fail to meet the standards desired of them and their skill levels fall much below expectations, they are liable to be taken to court for the loss they inflict upon the business of another person. Thus, they need professional liability insurance. Professional liability insurance is termed “errors and omissions” liability, when liability is confined to acts of negligence.
Professional liability insurance is specialty coverage. A few insurance carriers can add coverage by endorsement to a current policy. However, most insurance polices exclude this coverage. Professional liability covers its client against damages from claims of suspected negligent acts and errors or omissions in performance of the client’s professional performance.
Product liability insurance protects the business from claims related to the manufacture or sale of products, food, medicines or other goods to the public. It covers the manufacturer’s or seller’s liability for losses or injuries to a buyer, user or bystander caused by a defect or malfunction of the product, and, in some instances, a defective design or a failure to warn. When it is part of a commercial general liability policy, the coverage is sometimes called products-completed operations insurance.
To understand the need for this coverage it is critical to understand the potential liability. There are generally three types of products “claims” a company may face:
• Manufacturing or production flaws. A claim that some part of the production process created an unreasonably unsafe defect in the resulting product. Recent claims against Chinese manufacturers regarding the presence of dangerous chemicals in their products are an example of this type of claim.
• Design defect. A claim that a product’s design is inherently unsafe. The most memorable example is the series of Pinto car cases against Ford in the 1970s.
• Defective warnings or instructions. The claim that the product was not properly labeled or had insufficient warnings for the consumer to understand the risk. The McDonald’s “coffee case” is an example.
The damages awarded in these claims include medical costs, compensatory damages, economic damages, and, in some instances, attorneys’ fees, costs and punitive damages.
DLP: When a lab is sued, what type of insurance offers the best coverage? Does this vary by state?
Cooper: Every insurance policy is different in this regard. A lot depends on what you want to pay premium for. State laws can dictate what an insurance policy is allowed to pay in regards to fines, bail and punitive damages.
DLP: Why is it important for labs to be insured?
Cooper: Labs must purchase insurance where they are required by law and/or by contracts. Beyond that it is more important that labs understand what their current insurance premium covers and if the insurance premium expense is being fully used in the lab’s best interest. The list exercise gives you this opportunity. It is important to do the exercise so that when or if unintended or accidental situations occur, the lab is prepared and capable of withstanding the financial effect. Purchasing the right insurance policy can keep a dental lab in business during these times. Partnering with a good insurance professional and carrier can make all the difference when your lab suffers from a covered loss. Claims people are wonderful resources in expediting business recovery. An insurance policy should not be just about coverage, but also service when needed.
DLP: What are some common insurance misconceptions?
Cooper: I have an insurance policy so it must be covered. Again do not wait for a situation to occur to find out whether your current policy will cover it. Do not wait for something to happen and find out an additional $20 premium could have covered a $20,000 financial loss.
Many lab owners also think their policy covers their claim so the insurance company will handle it. In any claims situation it takes your participation to get it handled as much as the insurance carriers. You will have duties to perform from providing documentation to finding a new place to operate after a major fire. Having back-up documentation and alternative plans for business operations can save money in any claims situation.
DLP: Is there anything else you’d like to mention that we haven’t already talked about?
Cooper: Buying an insurance policy does not prevent accidents. An insurance contract is designed to provide financial assistance based on coverage in exchange for premiums. Insurance companies are great resources for helping you with accident prevention and should be used. However, it is up to the dental lab to promote and provide a safe work environment and a safe product to the market place.
Renee Knight is a senior editor for DLP. Contact her at firstname.lastname@example.org.
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