When a Property Loss Extends to Liability in Senior Care Facilities

By | November 15, 2021

There’s a storm warning. It might be a hurricane, a tornado, a derecho, or a microburst. It doesn’t matter, they all have one similar characteristic, damaging winds. After the storm passes, whether a building suffers direct damage or not, there is often a power outage that can last hours, or months depending on several different variables. Whether that outage is a mere inconvenience or more than that also depends on different variables.

After Hurricane Irma passed over Florida in 2017, power failures caused more than an inconvenience for many assisted living facilities in the state. For many businesses, the loss of power would be a potential business income claim. If their policies were endorsed properly, they would have coverage, if not they wouldn’t. But for a place such as an assisted living facility, it’s more than that.

Most businesses, when they lose power, even if there is no direct damage to covered property, there is the potential of a business income and extra expense loss. Most businesses will suffer some kind of shut down or slow down when utility service is interrupted. This is what their business income and extra expense coverage is designed for.

But what about an assisted living facility? How would they potentially be impacted by a power outage?

There is the property loss to consider. The business income loss would likely be minimal. Assisted living facilities receive their payments because the residents are there. They are paid by insurance, Medicaid, or Medicare. The power interruption isn’t likely to cause a loss of income in that way because even if a family member removes their loved one from the facility, the billing is probably automatic and would be paid.

From a property standpoint, the issue comes from spoilage. Assisted living facilities will have a kitchen because they serve meals. If the power is off too long, that food spoils and that’s a property loss. It’s probably no small thing, but it’s not the biggest thing.

Assisted living facilities are going to have medications on hand. Several medications require refrigeration and without it those medications can no longer be used to help people maintain their health. This includes critical medications, such as insulins and other medications which vary in importance, including several antibiotics. If those medications go bad, the assisted living facility suffers a property loss because the medication will need to be replaced.

Liability and Power Outage

Before going any further, it is worth noting that this is not based on any claim or lawsuit related to any loss of utility services at any assisted living facility. This is based on the loss of life that was suffered in several assisted living facilities and nursing homes in Florida due to a power outage. This is also not based in any professional liability standards, only based on an understanding of a Commercial General Liability policy.

The question of liability generally revolves around negligence. The insuring agreement for Coverage A – Bodily Injury on the ISO CG 00 01 reads (in part) like this.

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

So the policy requires that a legal obligation to pay damages must be assessed by someone who has the authority to assess legal obligation or the insurance company must look at the details of the claim or suit and determine that a payment should be made to indemnify the claimant for their damages. The question that would be answered is whether an insured was negligent, causing the claimant’s damages.

Let’s go back to the situation of a power outage at an assisted living facility. Could damages from bodily injury that was related to a power outage be assessed? To answer, we need to dig into what makes for negligence. The elements of negligence are a duty owed, a breach of that duty, damages sustained, and the proximate cause of those damages must be the breach of the duty.

Then the first question that needs to be asked is does an assisted living facility have a duty to ensure that power is maintained or find a substitution for the effect of the power? To answer that question, we should understand what power needs people at an assisted living facility would have.

The first people who would need the power maintained are any people who might be using life sustaining equipment.

This is not necessarily those people who are receiving medications, fluids, or nutrition intravenously. While the loss of power might make it more difficult to track what some of these patients are receiving, the probability of there being bodily injury seems low.

Think about some other medical devices that require power to help maintain someone’s life. There are people who might require dialysis, which cleans the blood and can take a few hours to 12 hours to run. There are people who are on ventilators, which mechanically push air in and out of someone’s lungs. Those machines can’t take a break.

They can’t have a moment without power. The lungs need to continue pumping.

Also, go back to the medications that we discussed that need to be kept cool. They won’t hit room temperature immediately, but eventually they warm up enough so that they can’t be useful.

One might be able to make the argument that if there are patients with those sorts of needs, the facility has a duty to maintain a steady power supply, even though many medical machines have a battery backup. Those batteries may not be charged properly, may not exist, or may not last very long with a device that is running constantly. If the facility has a duty to maintain a constant power supply, and the power is interrupted, does that necessarily mean that the loss of power is a breach of that duty?

That depends on what happens after the power is interrupted. The power interruption in and of itself is a fortuitous event in that you might be able to predict that a power interruption is possible, there is no way to predict what will cause it or when. That’s why the moments, hours, and days following the event are important to this discussion.

So the duty may not be to ensure that the power is never interrupted. It might be to get the ability to use life-sustaining equipment as quickly as possible. That might mean a backup generator that can handle the power needs of the facility. It might mean immediate access to transport to move vulnerable patients to another facility, such as a local hospital.

The breach of duty then would start with the existence of plans and procedures in the event of a power interruption. That duty would include training the staff on those protocols, or at a minimum making sure that enough staff were aware of the protocols and that they were written in a simple way so that they could be initiated in a timely manner. The remaining issues of damages related to the bodily injury that are caused by the breach of the duty are issues that the details of the specific claim or suit would surface.

There are times when we look at a risk as being strictly a property risk, like the risk of a power interruption. It doesn’t hurt to ask if that property risk might also include a liability risk with it.

Topics Profit Loss Property Senior Care

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at pwraight@ijacademy.com.

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Insurance Journal West November 15, 2021
November 15, 2021
Insurance Journal West Magazine

Surplus Lines: Wholesale & Specialty Insurance Association Annual Marketplace; Young Wholesale Brokers; Markets: Assisted Living / Long Term Care; Special Supplement: The Florida Issue