Professional liability (also known as “malpractice” or “errors & omissions”) insurance covers you and your business against lawsuits arising out of your professional services. While this coverage is readily available, not all policies are created equal. In order to provide adequate coverage, a policy must be designed to cover the unique operations of an aesthetic or spa business.
This special type of insurance coverage can protect against a wide range of allegations including allergic reactions to products used during treatments, all manners of skin irritations and inflammations, burns from hot wax and steam wands, and sexual misconduct (etc.). The most important point to understand is that anyone can file a suit against you at any time for any reason. All too often, we see groundless suits filed as fishing expeditions against unsuspecting business owners. Proper insurance protection can ensure that your hard earned reputation (and financial resources) are not wasted on defending fraudulent claims. That said, legitimate claims often occur when they are least expected. Equipment can malfunction. Your customer might be less than forthcoming on their medical history form. Your most experienced aesthetician might goof in selecting the appropriate product for her customers’ skin type. Things happen. Be prepared.
What’s in an Agent?
You expect that your CPA knows the tax rules. You expect that your lawyer knows the ins-and-outs of contracts and consent/release forms. Shouldn’t you expect that your insurance agent understands both the policy that they’re offering and the services that they’re covering? Once you’ve gone beyond the traditional “salon” services, you’ve likely also gone beyond traditional “salon” insurance. There’s more to an insurance quotation than the price. Have your services been properly covered? Ask to see a sample policy. What about that new couples hot stone massage microdermabrasion chemical peel combo? Make sure that your agent understands the policy exclusions and is able to clearly explain them to you. Are your services really covered, or did the insurance company forget to “exclude” them? Will your agent be there to back you up with industry expertise if the insurance carrier balks at paying a claim for the newest service?
What’s in a Policy?
Insurance policies are legal contracts. They’ve become easier to read over the last few years…but sometimes it still seems like you need a law degree to understand all of the terms and conditions. Ask your agent to point out two sections—what’s covered and what’s excluded. Buried in that “book” that you might not want to read are the details that will determine whether or not the insurance company will be there to defend you when that lawsuit comes through your door. Does the “what’s covered” section sound like a description of a barber shop or beauty salon? If so, your aesthetic and spa services may not be fully covered. If you’re lucky, the insurance carrier might cover one claim…and then cancel the policy. As a business owner, I’d rather have the policy written correctly from the start.
Nowadays, many insurance policies cover “everything”…except those things that are specifically excluded. The exclusions section has therefore become an increasingly critical component of professional liability policies. Common policy exclusions may include: laser or “IPL” services, pregnancy massage, hot stone massage, Brazilian waxing, genital waxing, microdermabrasion, chemical peels, removal of skin tags or spider veins, communicable diseases, work on minors, services performed by medical doctors, AIDS/HIV, and sexual misconduct. Some policies even exclude work performed by independent contractors. There may also be limitations related to the strength (concentration and/or pH) or chemical peel solutions. Each policy is unique and should be carefully reviewed.
Is the policy yours alone, or is it an “association” policy? Many “association” or “group” policies contain provisions that limit the maximum amount of coverage available to the group at large in a given year. This is called the “group aggregate limit”. Claim settlements seem to increase every year. Has the group aggregate also increased to keep pace with this trend? How many members are sharing the same group aggregate? It’s probably more than you think. Is the group aggregate high enough given the number of members? Should your coverage be limited because some other aestheticians or bodywork professionals had a bad (claims) year? That just doesn’t seem right.
How to protect yourself from claims/lawsuits
Claims happen. It’s a sad fact of doing business. Your exposure to claims can be reduced by treating all of your customers to the same standard of care, thorough and accurate documentation, and by making honest representations of the expected treatment outcomes. Simply put…under promise, over deliver, and keep detailed records of every single treatment that you perform.
“What about my staff?” Quality record keeping and loss-control must pervade your entire business. Even the best staff might not always learn by your good example. Make sure that all staff understands your philosophy and put procedures in place to address potential problems before they spin wildly out of control. If possible, conduct random checks of treatment records to ensure that accurate and complete records are being maintained. Implement an internal loss reporting procedure to capture all pertinent information regarding potential claims while the details are still fresh in everyone’s mind.
“What about my independent contractors/booth renters? I don’t need to worry about them…right?” Oftentimes, spas and aesthetic clinics rely on their independent contractors to carry their own liability insurance. This is a perfectly valid option, but it often fails on the follow through. In order to be properly protected, it is necessary for each and every independently insured contactor to name the business as an “additional insured”. They should also provide a “certificate of insurance” each year as proof of continued coverage. “Additional Insured” status helps you in two ways. First, if you become entangled in a lawsuit arising out of services performed by a separately insured independent contractor, you’ll be defended by the contractor’s policy rather than your own. Second, you should be notified by the contractors’ insurance company if the policy is cancelled during the course of the year. A word of caution…don’t rely on this cancellation notification in lieu of obtaining a new certificate of insurance each year. Cancellation notification diligence is often spotty at best, and there are virtually no rules or regulations that will compel the insurance company to make sure that you’ve been properly notified of a contractor’s policy cancellation.
No matter what happens, never admit guilt or responsibility. Do you best to maintain a polite and courteous demeanor. Notify your insurance carrier promptly. Refrain from discussing the matter with anyone not directly involved. Always let the insurance company handle claims letters from lawyers.
Where does professional liability coverage begin and end?
Though coverage goes far beyond coverage limits and policy effective dates, the realm of potential incidents covered by your professional liability policy is not boundless. What happens if a customer faints following a facial or massage, slips out of the treatment chair, and suffers a concussion when they fall to the floor? Were the injuries a reaction to a product used during the treatment (product liability)? Perhaps caused by the angle of the treatment chair or table (general liability)? Did the therapist do something wrong, or turn away from the customer at the worst possible moment (professional liability)? The easier answer…yes! Any lawyer worth her salt will likely make all of these allegations, and possibly more. Your professional liability coverage is important, but is only one component of a complete insurance program. More complete coverage can be obtained through the inclusion of general and product liability coverage (they’re normally sold together). This supplementary coverage is often most effective when written through the same insurance carrier that provides your professional liability coverage. Consult your insurance professional to build an insurance package that will protect you against all potential events.
(published 2009, Dermascope magazine)