01.13.2025
Article
The Importance of Early Disclosures in Healthcare
An early response and investigation are key to handling events. We want our members to know that we are here to help ensu...
Learn MoreLiability coverage agreements can be complex, especially if you’re new to navigating them or have never had the opportunity to dive deep on what is covered in your own policy. LHA Liability Trust Fund coverage agreements, like other liability insurance policies, contain several key parts:
Often, consumers are primarily interested in items 1 through 4, asking questions such as:
These are all great questions to ask, but we must not forget about a policy’s conditions. This important section plays a significant role in the overall function of your benefits, so understanding them in depth before choosing a policy is critical. Let’s take a closer look.
Liability insurance policy conditions are specific terms and provisions outlined in your policy that determine how coverage is provided, how claims are handled, and the responsibilities of both the insured (you as the policyholder) and the insurer. These conditions are crucial to understand because they outline how your policy will be enforced and they can affect whether a claim will be accepted or denied.
Typically, consumers do not base their decision to obtain a particular policy or coverage on the Policy Conditions for a particular insurance. However, considering that policy conditions identify the general requirements of an insured and insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and nonrenewal, they are vital to factor into any final policy selection.
Although this section is often overlooked, each condition plays a big role in determining how the policy works in a variety of situations. These both protect the insurer from responsibilities that fall outside the scope of their coverage while clearly illustrating how the policy will assess claims and provide compensation for the insured. Overall, these conditions help:
Legal language in a policy’s conditions section can often make it difficult for consumers to understand what parameters actually exist within their policies. Thankfully, there are several types of conditions that are frequently found across professional liability policies. While not all policies include these specific conditions, many do—so becoming familiar with their functions can help you better identify policies that work for you.
One policy condition that seldom comes into play deals with the assignment of insurance benefits (AOB). This refers to the transfer of legal rights under, or interest in, an insurance policy to another party. In most instances, such rights can only be assigned with the insurer’s written consent.
In fact, the “assignment” clause in our own Trust Fund agreement is short and sweet:
“Assignment of interest under this Coverage Agreement will not bind us unless our consent is endorsed hereon.”
Usually, the AOB in a liability coverage policy is an arrangement where the policyholder (that would be you) transfers their rights to receive insurance benefits to a third party (typically a service provider), such as a contractor, different healthcare provider, or utilities company. By signing an assignment of benefits, the third party can directly bill your insurer and receive payment for services rendered, rather than you paying upfront and seeking reimbursement afterwards.
Transfer of Rights: Through a formalized process, the insured gives their right to collect benefits from the insurer to a third-party service provider. During this time, all parties must consent to this transfer and what it entails.
Direct Payment: After the AOB is signed, the service provider can bill the insurer directly. This allows the insurer to pay the service provider instead of the insured, helping expedite services with prompt payment.
Simplifies the Process: By cutting out the middle man, so to speak, an AOB simplifies the claims process for the insured. Not only do you not have to cover costs up front, but you don’t have to coordinate with the insurer on the backend for reimbursement. Everything is completely managed between the insurer and third-party.
The main draw of an AOB is obviously convenience. As the insured, you don’t have to deal with payments or wait for reimbursement, streamlining the claims process. However, that doesn’t mean there aren’t risks involved.
In some cases, signing an AOB can lead to disputes between your insurer and the third-party service provider. These disputes could be over inflated charges or unauthorized services—often due to hiccups in communication over coverage limits or consent on the front end. Because of this, many insurers restrict or carefully monitor their AOB agreements to prevent fraud or abuse like this from happening.
Let’s take a look at a situation involving a real-life AOB dispute that occurred with LHA Trust Funds and the underlying issue involved.
To illustrate how this rarely used provision can have significant implications for both the Trust Fund and the Participant, we were recently involved in a situation where the Participant settled a claim under the coverage of its prior liability insurance carrier with a Release that included the following language:
“The parties expressly agree that the undersigned plaintiffs may continue their claim against (hospital) as a nominal defendant only, and that if a judgment is obtained against (hospital) said judgment may only be executed against the Trust Fund up to its available limits of coverage. Furthermore, if a judgment is rendered in the future against (hospital) as a nominal defendant, (hospital) hereby contractually assigns whatever rights or protections it may have under other coverages that may be available to it, so that plaintiffs may bring suit directly under (hospital’s) contractual agreement with the Trust Fund to collect any and all available coverage to satisfy said judgment.”
The Participant entered into the Release agreement and the assignment of benefits without any notice to the Trust Fund, protecting itself by exposing the Trust Fund to—at the very least—significant legal defense costs along with possible indemnity damages. Since consent was not obtained, the Trust Fund had the legal right to deny coverage.
In this particular case, several other coverage issues and unique factual circumstances also existed. All was finally resolved by a pre-trial compromise settlement after protracted and costly pre-trial discovery/litigation.
The bottom line is this—it is possible that your facility could become involved in litigation where you may receive legal advice to assign the benefits of Trust Fund coverage (or other potential coverages) to another party to be fully released from any further financial exposure.
While this is not illegal or even unethical, it could very well be a breach of contract that nullifies the assignment of benefits. Rest assured, if you do not confer with the Trust Fund beforehand and request consent to assign benefits—and there is no guarantee that consent will be given—then the Trust Fund will definitely explore its right to deny coverage to the fullest.
Contact Director of Claims Mike Walsh for more information. Interested in general liability risk management tips? Our consultants share some of their top findings.
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