Jan 04

The Schneider Group has Medical Equipment
Sales & Service Organizations Covered—for Less

In the realm of medical equipment sales and service, companies strive to offer the highest quality equipment to their customers to promote the best care, and above all, patient safety. Unfortunately, in the event of equipment failure, even the most diligent, conscientious organization may find itself in the throes of litigation—a process that can prove both daunting and costly, even if the sales and service organization is found not to be at fault.

Despite that sobering reality, many sales and service companies lack insurance coverage that can help insulate them from the industry’s inherent risks. While some go uninsured because they are unaware of their vulnerability, many remain unprotected because of limited policy availability and skyrocketing premiums that make product liability coverage financially unfeasible.

The Schneider Group, Tucson, AZ, has long recognized those challenges, and as a result, has offered quality, cost-effective product liability insurance to the industry since 1986. Over the past 17 years, The Schneider Group has continued to expand its flagship PROTEKsm medical equipment liability insurance program and now serves a client base of approximately 500 nationwide—growth that has consistently helped keep premiums to a minimum. In addition to the product liability program, The Schneider Group also offers automobile insurance, property coverage, cargo and transit coverage, stop loss maintenance coverage and worker’s compensation in selected states. The Schneider Group has also developed Occurrence Form liability insurance to further broaden the coverage beyond the typical general liability insurance policy.

Here Dan Schneider, president of The Schneider Group, discusses the overall value of product liability insurance, the reasons so many organizations have failed to acquire coverage in the past, and how The Schneider Group can make product liability insurance an affordable reality for the medical equipment sales and service industry.

Q: What, exactly, does product liability insurance cover for medical equipment sales and service organizations?

A: For the repair organization, product liability covers bodily injury and property damage that can arise out of the process of repairing the equipment or when something goes wrong with the product after the repair has been made. For the equipment sales organization, it provides coverage in the event that a product being sold causes bodily injury or property damage. Our program starts with limits of $1 million per occurrence and $2 million in the annual aggregate, and we can provide limits of coverage above that, all the way up to $50 million.

Q: Many medical equipment sales and service organizations lack product liability insurance. Why do you believe that gap exists?

A: Some lack coverage because they aren’t aware it is even available or because they are having trouble finding it. There are also people who just aren’t aware of their exposure and potential liability risks. Some are also coming to us because they are being required by their customers to acquire insurance to fulfill a contract. The fact is there are not many insurance companies out there that are familiar with this area, so people are being declined or just can’t acquire it on a reasonable basis.

Q: Why is product liability insurance so valuable for this industry?

A: The primary value is to protect the insured’s assets against a catastrophic liability judgment. Aside from that, one key aspect of product liability insurance that many people many not know about is that it covers the cost of legal defense on an unlimited basis. In other words, the insurance company not only pays if the insured is found liable—it also covers the cost of defending the potential lawsuit. That’s of real value because the cost of defense in this day in age is an expensive proposition. The cost for an attorney to open up a file usually starts at about $5,000, and if there’s much research, fact-finding and interrogatories involved, that can jump quickly to $20,000 to $25,000. Then, if it goes into a court and a trial situation, the cost of defense can easily total $50,000 or more.

Our policy covers that cost of defense, so even if the medical device sales or service organization doesn’t believe they have much of an exposure for judgment, they would have coverage just for defending a suit. In the event of an injury or property damage, the Plaintiff’s attorney usually will name everyone involved in either the sale or service, or operation of the equipment. What we see often is the hospital will be named, along with the service entity, and potentially the people who sold the equipment to the hospital. Then after all the discoveries and interrogatories take place, they go through the process of sorting out who is really responsible. Even if the sales or service organization isn’t responsible, they still have to defend the whole process and pay for the cost. If for nothing else, we believe medical equipment sales and service organizations should acquire product liability insurance so they can protect against high legal fees in the event that something does happen and they are named in a lawsuit.

Q: What events have taken place in the marketplace in recent years to result in reduction in coverage?

A: This particular type of risk is an area that very few insurance companies have understood well enough, and as a result, there has been limited availability of coverage. For many years, their premiums and pricing was what we called a “soft market”; in other words, they were basically under-pricing their products and depending upon stock market returns to earn their overall profits. That all started falling apart in 2000-2001 when the stock market fell flat, and it was further exacerbated by September 11. That tragic turn of events added momentum to what was already happening, and in the last couple of years, we’ve seen even a further reduction of companies that would provide this type of coverage.

Many companies pulled out of the marketplace entirely because they could no longer rely on investment returns and had to rely strictly on underwriting returns. To do that, you have to restrict and become more rigid in the types of risks you take on, and increase the premiums significantly in hopes of getting underwriting profits in the classes you do write. As a result, we’ve seen a further restriction of the availability of this type of insurance over the last couple years, and insurance rates going up 50%, 100% and even 200%. We get four or five calls a week from people who are being non-renewed or are seeing significant renewal rate increases. When insurance companies looked in their book of business and saw the class of Medical Device Sales and Service, that became one of the first classes targeted for elimination because it wasn’t something they were really familiar with anyway and had the potential of causing them losses they just couldn’t tolerate.

Q: How has The Schneider Group been able to remain stable in such a turbulent marketplace?

A: We have had a program with the same underwriters for nearly 17 years, and as a result, have been able to establish a very good track record. Over this long period of time, we have been able to build up a level of confidence in underwriters so they know they can write this at a reasonable rate and do it profitably. The combination of those factors has enabled us to maintain availability and minimize premium increases. There will always be adjustments, up or down, in any segment of the insurance industry. We consider it our responsibility to our clients to provide them as consistent programs as possible, and to do so long term. So far so good!

For more information about The Schneider Group, contact them at 800.234.9037, Fax: 520.670.1121 or visit www.theschneidergroup.com.