What is entity cover and why is it important?

Protecting your practice

Individual indemnity cover may protect you but it won’t protect your business.

There are around 14,124 dental practices in the UK with well over 120,000 registered professionals supported by teams of practice administrative staff. All of these individuals are responsible for arranging their own professional indemnity insurance but many practice owners neglect protecting their businesses for the same risk.

Running a dental practice as a limited company

Since 2006, dental practices have been able to set up as limited company and before the COVID-19 pandemic, there was much debate in dental press about the pros and cons of incorporation. In general, being a Limited Company is the second most popular way of setting up a business in the UK, with over 2 million registered in 2020.¹

Being a limited company is one measure people take to protect their personal finances, as the business is then a separate entity, unlike being a sole trader. Therefore, any business debts will only have to be paid by the business, not the owner or the shareholders. Whilst a limited company has tax advantages, a certain cachet and of course, limited liability, there are both advantages and disadvantages to consider.

We are seeing an increase in dentists owning their own practices or forming a limited company, due to factors such as; –

Ability to undertake private work.
Diversification of services such as implantology, facial aesthetics, cosmetics.
Greater freedom over the direction of the business.
Tax Benefits.
Profitability providing funds to grow the business.

Your Limited Company could still be exposed to claims.

Whilst establishing your practice as a limited company has many advantages, there are additional aspects to consider when it comes to insurance cover. Having suitable Professional Indemnity cover in place to comply with the various legal, regulatory, and contractual considerations will enable you to carry out your day-to-day roles. However, relying on this cover in isolation may be inadequate. Many practices that operate as Limited Companies may still be leaving themselves vulnerable from litigation, because of an aspect of law relating to Vicarious Liability.

What is Vicarious Liability?

In essence this means someone being held responsible for harm caused by the actions of others. As a practice owner and hence an employer, you can be held liable for the actions of your employees, even if you played no physical role in the harm, treatment, or action against a patient. For example, you could face a complaint for failing to monitor or supervise your staff or even consultants, or for failing to maintain correct data protection or not having a complaints procedure.

Vicarious liability holds an employer liable for the actions of its employees and if this leads to a situation where a patient / third party earns compensation, somebody needs to be held accountable and that can mean your business! Even if you as the employer are not personally at fault. As a practice owner or manager, you may get named as a 3rd party in a complainants’ action.

Furthermore, your dental practice could be held vicariously liable for the actions of someone who is not an actual employee, such as any self-employed associates or even a temporary locum, and it can still be applied if a former employee has subsequently retired from your practice. Similarly, should an associate leave the business for another country and cannot be located, the entity (your business) may still be implicated, up to six years after the incident occurred.

It is therefore important to have cover to protect you from any potential losses which you could experience through no fault of your own.

Why it is important for a Limited Company to think about entity cover?

Most practice owners will purchase individual indemnity cover via a defence organisation or similar cover via an insurance provider. If the former, you may only receive a contribution towards any costs arising from a claim, based on how much involvement you had in the original circumstances or sometimes no cover at all should the defence organisation decide otherwise.

This is because that the indemnity provided by a defence organisation is discretionary and cannot be enforced contractually, whereas an insurance policy is legally enforceable.

It is worth noting here that a practice owner or an individual indemnity policy may not safeguard the entire entity, unless the discretionary trust cover specifically includes a vicarious liability extension.

An increasingly litigious society blames the business.

Unfortunately, we are seeing an increase in litigation and patients have increasing expectations and knowledge of their rights. Dentists are seen as ‘easy pickings by the public and solicitors, especially as they are perceived as “greedy”’ according to Professor Paul Tipton in his article for Lawyer Monthly². This results in the public having little sympathy for them and not only suing the individual but also going after the practice, as the business is seen to have deeper pockets.

Contractual requirements by the CQC or other healthcare organisation may require the presence of separate entity (vicarious liability) insurance to satisfy the needs of the contract. Indeed the CQC Regulation 13 states³ “The provider must have insurance and suitable indemnity arrangements to cover potential liabilities arising from death, injury, or other causes, loss or damage to property, and other financial risks.” And whilst entity cover isn’t mandatory, we are seeing many NHS contracts asking for it.

Furthermore, existing policies may not cover dental nurses, technicians, specialist practitioners, or private work.

Being set up as a Limited Company or running a practice where other professionals work and provide treatment, it is vital that you protect your business against claims of malpractice being made against that business and legal entity (as opposed to individual practitioners or the individual Directors and Officers.)

Entity insurance is designed to cover your practice (rather than the directors) against claims or investigations that result from the actions of the employees who have provided treatment, practitioners or directors, but where the action is brought against the practice instead of the individuals responsible.

The benefits of entity cover include –

Malpractice – cover can include acts or omissions made by the members operating within the entity.
Negligence or breach of a duty of care arising as a result of the insured’s business.
Defence costs and legal expenses including settlement costs/compensation awards.
Other costs such as mitigations costs, civil fines and penalties etc.
Plus, ancillary extensions such as coroners’ inquests, investigations costs, dishonesty of employees and ‘Good Samaritan’ acts.
24/7 legal advice telephone helpline.

Don’t get caught out- review your cover now.

It is important that your practice reviews the extent to which you may be liable and arranges appropriate entity cover to supplement any individual indemnity protection already in place.

If you are thinking of forming or have recently set up a limited company operating as a dental practice, or even if you are already trading as a limited company operating as a dental practice, it is sensible to review your insurance needs. Talk to us as experts in this field and we can help you identify any gaps.