Managing Leadership Risk: The Importance of Directors and Officers Insurance in Healthcare

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Michael Hummel, RPLU, of Marsh McLennan Agency ​

In today's complex and rapidly evolving healthcare landscape, executives and board members of healthcare organizations face a multitude of challenges and risks. Risk of cybersecurity attacks, workplace violence, and medical malpractice claims are particularly relevant today. Inadequate risk management practices in these areas can expose an organization and the personal assets of its leadership team to significant legal and financial liabilities. For community health centers, a well-structured Directors and Officers (D&O) insurance program can provide critical protection to the individual members of their executive team and board, allowing them to focus on their vital roles.

Cybersecurity Attacks
The healthcare industry has increasingly become a prime target for cybercriminals. The vast amount of sensitive patient information stored in electronic health records, coupled with the potential for financial gain from selling this data on the black market, makes healthcare organizations particularly vulnerable to cyberattacks. Weak risk management practices in cybersecurity can have dire consequences for healthcare executives and board members.
One of the most notorious cyberattacks in the healthcare sector was the WannaCry ransomware attack in 2017, which crippled the National Health Service (NHS) in the United Kingdom. The attack not only disrupted patient care but also raised serious questions about the NHS's cyber readiness and its leadership's responsibility.
Healthcare executives and board members can be held accountable for cyber breaches if they fail to implement adequate security measures, fail to stay up to date on evolving threats, or neglect to allocate resources for cybersecurity. The legal, financial, and reputational ramifications of such breaches can be severe.

Workplace Violence
Threats of violence in healthcare settings have become an unfortunate reality. Healthcare professionals at all levels are exposed to the risk of violence from patients, their families, or even other staff members. Failing to implement proper security measures, violence prevention programs, or providing inadequate staff training can result in significant exposure for healthcare leadership.
In the industry, executives and board members have a legal duty to maintain a safe environment for both patients and staff. Neglecting to meet this duty can lead to lawsuits alleging negligence, emotional distress, or physical harm. Such claims can have a devastating impact on the personal finances of those in leadership positions.

Medical Malpractice
Medical malpractice remains a significant concern in healthcare, and it poses unique risks for executives and board members of healthcare organizations. Anemic risk management practices can result from lax oversight of medical staff, inadequate quality control measures, or subpar patient care protocols. Failure to address these issues may lead to medical malpractice claims and lawsuits, which may individually name executive leadership or board members. For Federally Qualified Health Centers, these executive-level exposures remain even if a medical malpractice lawsuit is covered by the Federal Tort Claims Act (FTCA).

How Can D&O Insurance Protect Leadership?
D&O insurance provides crucial protection for community health center executives and board members. It acts as a financial safety net, ensuring that leaders do not personally bear the full brunt of potential liabilities.
In cases where individuals are named in lawsuits, D&O insurance can cover legal defense costs, settlements, and judgments. It can also help mitigate the financial burden associated with proceedings in class-action lawsuits, regulatory investigations, and other legal actions.

What to Consider when Selecting D&O Coverage?
To effectively protect executives and board members, a D&O insurance program should include the following key features:

1. Broad Coverage: A comprehensive healthcare D&O policy should cover a wide range of claims, with as few exclusions as possible. The broader the coverage, the better the protection.
   
   
2. Indemnification: The policy should indemnify executives and board members for legal defense costs, settlements, and judgments. This financial support is critical in maintaining personal assets.
   
   
3. Tail Coverage: Also known as an extended reporting period, tail coverage allows executives and board members to report claims that occurred during their tenure even after their service ends.
   
   
4. Defense Outside the Limit: Policies that offer defense costs separate from policy limits are preferable as this ensures that the full policy limit is available for settlements and judgments.

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Allowing Leadership to Focus on Their Vital Work
Healthcare executives and board members play critical roles in ensuring community health centers continue delivering much needed services to their communities. A robust D&O insurance program is an essential tool to protect healthcare leadership from potential liabilities and financial exposures. By doing so, healthcare leadership can focus on their vital work, while having the peace of mind that they are adequately protected against the inherent risks of their positions.
 
Michael Hummel, RPLU, of Marsh McLennan Agency works with healthcare organizations and FQHCs across the Northwest to optimize risk management strategies for their unique challenges. To connect with Michael, please email [email protected] or call 509-853-4234.
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