Nursing homes are right in the middle of the deadly coronavirus pandemic hitting the U.S, with more than 20%, or 11,000, of the nation’s COVID-19 deaths happening in these long term care facilities, according to a mid-April report by The Associated Press.
As of 2016, there were 15,600 nursing homes in the country. The New York Times reported April 17 that the virus had been found in at least 4,100 American nursing homes and other long term care facilities. The virus has had a devastating effect on elderly or immunocompromised residents of these facilities in particular.
It has been a struggle for the long term care industry, encompassing assisted living facilities, independent living facilities, nursing homes and skilled nursing facilities, as well as continuing care retirement communities (CCRCs), as it faces staffing shortages, a lack of personal protective equipment (PPE) and inadequate testing.
The insurance industry is well aware of these struggles.
“They’re just overwhelmed,” said Michael Spaan, president of Inlight Insurance Services of Oklahoma, which specializes in commercial healthcare risks, writing about $30 million in premium in the space. “They’re already overwhelmed, and they’re already overworked and now, I don’t see how they’re doing it. … It’s very problematic for a long term care provider. I think they’ve got the toughest situation in healthcare with this particular pandemic.”
The insurance market for these businesses was already strained before the current crisis.
In its 2019 long term care providers study, insurance broker Aon estimated that losses would increase by 5% and claim frequency would go up by 2% annually. Annual claims costs in 2020 would average $2,300 and increase by 5% annually, Aon forecasted.
Increasing frequency and severity of professional and general liability claims resulted in substantial rate increases in these lines for 2020. Insurance Journal reported in January that some brokers saw increases of at least 12% to 15% for senior living facilities, even on accounts with no loss histories. Capacity took a hit as well. Agents in the space reported the number of carriers writing the business had started to decrease way before COVID-19 gave insurers another reason to be wary of the market.
James McNitt is area president for Risk Placement Services (RPS) Healthcare Division in Chicago, a wholesaler writing about $100 million in premium for long term care facilities that places business with the segment’s major carriers such as CNA, Chubb, MedPro, and others.
McNitt said there was significant movement in 2019 towards a hardening marketplace demonstrated by carrier consolidation, a focus on building deductibles and retentions, and excess limit capacity constraints.
The marketplace has been historically unprofitable, he said, with some carriers operating at combined ratios of over 200% in the past five years.
“[Carriers] have not been able to write their way out of it,” McNitt said. “We ended 2019 with a market that was speeding down the highway towards a very hardening spot, and here we are with a whole new reason to have an even more tough time writing in this space.”
Insurance specialists in the class say the facilities are doing the best they can considering they lack proper resources, such as PPE.
“The federal response for the elder care community has been really disappointing,” said Michael Stoop, president of Metropolitan Risk Advisory in Irvington, N.Y., who noted his clients have had to figure out on their own how to acquire PPE to protect staff and residents and get testing in place to stem outbreaks in the facilities.
“It’s a lack of resources that is really contributing to and exacerbating the issue in these nursing homes,” he said. “They have to be fully resourced and they aren’t, which is why it is spreading like wildfire there and these [residents] just can’t take it.”
Steve Spina, executive vice president of underwriting at TDC Specialty Underwriters, said they’ve heard from insureds who are using trash bags and hotel shower caps as PPE, as well as homemade masks for protection.
“They are MacGyvering their way through this, even though there isn’t a lot available to them in terms of the equipment that they need. These people are really putting their lives on the line,” said Spina whose firm, TDCSU, is part of The Doctors Company Group, a mutual insurance company that insures about 2,000 nursing homes and has a book of business of about $50 million in that space.
Negative media stories about what is happening at long term care facilities has made it harder, said Shelagh Grubb, producer with Plasteridge Insurance Agency, which insures about 800 facilities in Florida. “I think [the staff] are superheroes and they’re not really getting the recognition or support that they should be getting,” said Grubb, also a board member of the Florida Assisted Living Association.
Not surprisingly given the pandemic, the cracks in the long term care industry insurance market that were already evident have been getting worse. Carriers in the space have been pulling back on capacity and coverage due to increasing claims frequency and severity since the beginning of the year.
“Before March, going into 2020 the market was already distressed for long term care providers. Now I would say it’s about as difficult of a market that I’ve ever seen,” Spaan said.
McNitt is worried that the potential liability some nursing homes may face will make a difficult insurance situation even more difficult.
“My concern is that the nursing home space is going to continue to have a deteriorating reputation as a result of this and their occupancy rates are going to be way down — therefore making less money — and they are already not able to pay their insurance premiums,” McNitt said. “Their insurance isn’t going to go down, in fact, it’s going to go up and they already can’t even afford it. It’s going to be a bad time to be a nursing home operator.”
“When we get on the other side of COVID and what does that industry look like … it is going to be absolutely decimated,” said Stoop. “How many families are going to want to put their families in a nursing home after what just happened? And staffing is going to be a huge issue for them, and it was already an issue before. There are so many unanswered questions.”
Some agents say it is too early to tell what the eventual effect on the insurance market will be as the situation is changing daily.
“This is not only new for the world, it’s also new for the insurance industry. So right now, it is kind of a waiting game to see what happens,” said Grubb. “It’s really going to depend on how the courts decipher some of this policy language to really speak to what the exposures are going to look like. … It’s going to be very interesting to see how this all plays out.”
Too soon or not, the liability concerns are on the forefront of the minds of many working with this class, particularly carriers.
According to McNitt, some carriers have already implemented COVID-19 specific applications that require the long term care facility to state if they’re aware of positive virus cases among staff or residents. This is a dangerous move for the insured, he said, because if someone tests positive after the application goes through to the carrier, they “could say that it was a potential misrepresentation.”
“If a facility does state [they have no cases] they’re putting themselves on the hook to make sure that they’re being honest, and you can’t honestly expect any nursing home in the entire country to not have a case today,” he said. “If they don’t know about it yet, they just haven’t found it.”
Carriers are reportedly also enacting broad COVID-19 exclusions on new and renewal business, placing moratoriums on writing medical professional liability business until mid-May, or being extremely selective on what types of facilities they will write and where they will do business. States like New York, New Jersey, California and Florida are considered highly litigious and particularly difficult to find coverage for right now.
“Instead of trying to figure out what the premium needs to be to write it, they’re just electing to not quote it,” said Spaan. “Because of markets pulling out already before all this started, the ones that are left are being very, very, very, very selective. If it’s not a completely stellar five-star facility, then carriers are declining to quote in many cases, particularly if it’s in a state that’s litigious.”
“Carriers are afraid right now … I used to get a tremendous amount of calls from carriers and they have been silent,” said Stoop. “They see a really fragile glass vase on the mantle and just the slightest movement is going to send everything crashing.”
Florida agent Matt Baker, president of Thompson Baker, said he has been unable to renew a policy that expires in May for a single location nonprofit skilled nursing facility with just over 200 beds that has operated in the community for 100 years.
His agency began the renewal process back in January and received non-renewals from three different carriers — one on the D&O policy, one on the general and professional liability coverage, and one for workers’ compensation. Now that the country is in a full-fledged pandemic, he has been unable to get quotes from other carriers.
“The feedback that I’m getting is that this isn’t just a Florida problem, it’s certainly not just an issue with my particular account, this is a burgeoning thing nationwide to the extent that facilities could be faced with a financial decision that may lead them to go bare,” Baker said.
He is still hopeful he will be able to place the business but expects that when he does the terms of any coverage will “be dramatically different.”
“I think the market was already changing a little bit, but I think we’re in the early stages of seeing that the virus is really making things — at least in the near term — worse from a coverability standpoint,” he said. “It was already getting more challenging, but this has really made it a lot more challenging,”
Spina said there are still competitors and capacity in the market, and it is a long way off from an affordability crisis. He acknowledges that nursing homes are financially squeezed and may not be able to take on additional premiums so they may choose to self-insure some layers of coverage to keep costs down, but he doesn’t think rates will go up more than they were before the virus hit.
“The hardening has already happened, and it’s a matter of how hard it gets. There may be pockets where nursing homes cannot find coverage, because of either where they reside or how bad their loss experience has been,” he said. “But if what I believe is going to happen happens, in terms of the crisis being limited largely to defense costs, then I don’t see an Armageddon insurance environment.”
The level of liability the segment may face when the crisis subsides is top of mind for the industry and its insurers.
Professional liability defense attorney Constance Endelicato, vice chair of the Medical Device and Health Law Committee of the International Association of Defense Counsel (IADC), described the COVID-19 exposures as “endless,” and said the facilities’ vulnerability to exposure has been “riddled with various complicating factors.”
Some of those complicating factors include: how quickly a facility locked down to outside visitors; how strictly the facilities followed proper policies and procedures to contain the virus’ spread; if exposed and asymptomatic workers spread the virus unknowingly; challenges controlling the spread of the virus; lack of treatment options for patients; staffing shortages because of infection; refusal to come to work or walk-outs; and lack of adequate PPE, to name a few.
“The lack of testing capability, the delayed symptoms, the ongoing admission of new residents, and the residents’ fundamental rights to have family and friends as visitors, may also play a role in exposure as these factors are thought to be ways in which the virus can spread,” said Endelicato, who is also partner at law firm Wood Smith Henning & Berman in Los Angeles where she defends physicians, hospitals and skilled nursing facilities.
“Although individual policy considerations will vary, some policies may have specific exclusions or defined terms which could … limit or negate coverage for losses associated with COVID-19,” she noted. “As an example, property policies may have specific virus exclusions, while business interruption policies may require a demonstration of a ‘direct physical loss.'”
Attorney Alan Levine of Levine and Associates in Florida, who litigates malpractice claims against nursing homes, said he doesn’t think COVID-19 creates a slam dunk for lawsuits by plaintiff attorneys. He personally will look at several key factors before filing suits, such as the timing of someone’s infection — was it in January or March — and what actions were taken to counter the virus’ spread.
“Once you determine how it got in … then the liability is looked at: What did they do once it got in to protect these people? If they didn’t do anything, you could go after it from that aspect,” he said. “It’s two different phases and that’s where you kind of fall into the general policies versus the professional policies.”
The unknowns in terms of how the virus is spread and when people show symptoms further complicates any general liability claims against the facilities, he said.
“When you’re looking at it from the liability aspect, it’s did they violate their policy and procedures? What did they do that allowed that virus into their facility that they knew or should have known about? And that’s going to be really, quite frankly, hard to prove. But again, if there were elements of it or they were aware of it, you could pin liability,” he said.
Levine said there is a financial deterrent to attorneys filing frivolous suits against nursing homes because the cases are very expensive and difficult to litigate. The costs can outweigh the benefits.
“In any kind of civil case, or even a nursing home case, you need two things from a plaintiff’s side to be successful — you need liability, you need damages,” he said. “In today’s world, from a plaintiff’s perspective, it’s all about the insurance coverage. If you’ve got good insurance coverage and the case is decent, you move forward with it. But a lot of times you’re just running into very, very low insurance coverage, if any at all.”
TDCSU’s Spina said he thinks the main exposures will likely fall under professional liability and whether the facilities did what they were supposed to do to protect the residents as best that they could against a standard of care.
“This is a widely held axiom of the professional liability world. Whether it’s healthcare or it’s non-healthcare, there is a standard of care that is the measuring stick upon which liability is established. Given the unique set of circumstances that this virus provides, how do you measure or hold accountable an organization against the standard of care that really doesn’t exist?” he asked.
Spina thinks there will likely be a rash of claims but also believes nursing homes are not defenseless. “[There’s] just a whole bunch of defenses available to them, not just in terms of a measurement against the standard of care, but there’s also causation. Exactly how is it spread? How do you get the virus? In a nursing home, it really comes in four ways — from visitors who come into the facilities, appointments that they might have to take outside for, any new admissions, and staff,” he added.
Still, the long term care industry would like to see more done to limit facilities’ liability. The American Healthcare Association and the National Center for Assisted Living (AHCA/NCAL), which represents more than 14,000 facilities, told Insurance Journal that it is concerned about the potential liability to long term care facilities “who are responding to the pandemic and providing high quality patient care while following updated guidance that has been issued by federal agencies such as CDC and CMS.”
Mark Parkinson, president and CEO of AHCA/NCAL, said legislation like the CARES Act and the Public Readiness and Emergency Preparedness Act (PREP Act) include language that provides additional federal liability protections for volunteer healthcare professionals or broad immunity protections to healthcare professionals during the COVID-19 emergency response. Additionally, the Secretary of Health and Human Services has urged state governors to take action to protect healthcare professionals from medical liability.
“While we appreciate these initial steps and support from the federal government, more needs to be done to afford appropriate legal protection to those that are working hard to prevent and contain this virus from spreading,” Atkinson said.
AHCA/NCAL is encouraging every state to extend sovereign immunity provisions to long term care providers and other healthcare sectors providing care during the COVID-19 pandemic.
Inlight Insurance Services’ Spaan argues that immunity protection for these facilities should absolutely be passed at the federal level because the losses will be devastating to this class if civil litigation is allowed to go unchecked.
“Immunity has to happen. I don’t think there’s any other remedy that will provide the long term care providers with the solutions that they need right now,” he said. “I think you could have the best nursing home in the country doing everything correctly and they could still have an outbreak in their facility.”
Immunity would be helpful, said Spina, but “there will always be a carve-out for the gross negligence and the sensational headlines of these terrible situations that should never happen.”
“[Immunity] is not something you can rely upon because it can always be challenged…. But I do think that more immunity is going to happen.”
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