Professional liability insurance: A short primer

Key Points

Her doctor gave the opinion the student had an unusual but known reaction to the drug Frank gave her. Faced with hospital and medical bills, and under pressure from their health insurance company, the student and her family sued the pharmacy and Frank.

Both the pharmacy and Frank carried professional liability policies that contained language similar to the following:
"We" [insurance company] do not pay for "property damage" arising out of … a willful violation of a regulation or statute relating to "pharmacy services"; or … a violation of criminal or penal statute or a criminal act …

Every pharmacy professional liability insurance policy, corporate and individual, contains a list of definitions, conditions, and exclusions. For example, a policy that specifically covers "compounding" excludes "manufacturing."

The pharmacy and pharmacist employees need to know how the insurance company defines each term, and they need to be certain that its practices are within the policies' definitions.

Individual professional liability policies are designed to cover only the pharmacist insured. Individual policies are usually written as secondary policies, which provide coverage after the pharmacy's policy exhausts its coverage amount or refuses to cover the pharmacist. The advantage of this arrangement is that the defenses tend to be more coordinated.

Pharmacy owners and employees assume the pharmacy's professional policy covers the acts of employed pharmacists and pharmacy technicians acting "within the scope of their professional duties." Usually they are correct, but not always. The following language under the definition of who is "an insured" is not uncommon:
None of [the pharmacy's] "employees" are "insureds" … for [injuries] arising out of his or her rendering or failure to render professional health care services.

If such language is present, pharmacists and owners need to be certain there is an endorsement to the insurance policy that changes or modifies this rule.

Commercial policies often exclude pharmacy professional acts under the general liability sections of the policy, but then add a special pharmacy services endorsement that provides the coverage. Pharmacies must make sure the correct endorsement is on the policy and that it covers the professional practices of the pharmacy and its employees. Occasionally, and hopefully rarely, a pharmacy has found that its insurance agents did not include any pharmacy professional liability coverage when they sold the policy to the pharmacy.

Most commercial pharmacy policies and individual pharmacist professional liability policies adequately cover professional acts of the pharmacy and its professional employees. Pharmacists need to know, however, what to look for when purchasing insurance for professional pharmacy practice.

Independent contractors are generally not employees and are not covered by the pharmacy's policies. These pharmacists need special coverages for both general and professional acts.

By state law most insurance policies are written in plain language. They are detailed, but readable. Pharmacy owners, pharmacists, and technicians should spend some time understanding their insurance policies. It may be time well spent.

These articles are not intended as legal advice and should not be used as such. When a legal question arises, the pharmacist should consult with an attorney familiar with pharmacy law in his or her state.

Ken Baker is a pharmacist and an attorney consulting in the areas of pharmacy error reduction, communication, and risk management. Mr. Baker is an attorney of counsel with the Arizona law firm of Renaud Cook Drury Mesaros, Pa. Contact him by e-mail at ken@kenbakerconsulting.com
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