By Wolfgang Friedel
It is still early in the process of estimating the extent of damage and the time needed for recovery and rebuilding, but initial estimates put the economic impact on affected dental practices from $800 million to $1 billion. Current evaluations would indicate that a significant portion of this damage might be declined by the insurance companies. Almost three months after the disasters, many affected dentists are still struggling with their insurance companies, arguing the impact of flood versus windstorm and determining the degree of losses and insurance claims. They also have received very little financial relief from the Small Business Administration and other agencies. Current estimates are that a good portion of affected dentists will be unable to reopen their practice for another six to twelve months.
If you are one of those dentists you are asking yourself: what next? You might already have quantified your claim, made your submission to an insurance company, completed your applications for a SBA loan or grant, and are negotiating with a private lender. You are likely to be waiting on responses from all these entities— and you feel a sense of “being out of control” because you’re reluctant to move ahead until you know the extent of funding that will be available. You have the empty feeling that you might only recover 50 cents on the dollar because of coverage disputes or sublimits in the insurance contract. You might be also be concerned over whether you have submitted a claim for everything you are entitled to under the policy. You may be reluctant to make decisions on the rebuilding process until you understand whether your patients are returning and what the economic recovery for the area looks like. You are pondering the possibilities to rebuild as is, in the same spot or down the street, to retire, to move out of state, to down size or upgrade, to participate in building a group practice, to hire an associate or go back to be a solo practitioner. You have a long list of questions and very few answers.
Recovery Empowerment Summit
Sullivan-Schein shares your concerns and is working closely with the American Dental Association (ADA), the Louisiana Dental
Tim Chauvin, a dentist from Plaquemines Parish, Louisiana, had this to say before the summit: “I had just purchased my practice in February of 2005. It is located in southern Plaquemines Parish, which was totally destroyed by hurricane Katrina. My greatest concern is about the people returning to the area. Even if I rebuild quickly I wouldn’t be able to work since electrical power (Entergy) and other services might not be restored until maybe as late as the end of 2006.
I have flood insurance under the Federal Flood Program and a business insurance policy which includes property damage, practice interruption and service interruption. My hope is to recover enough money from the insurance to pay off my outstanding loans and to relocate to another location and purchase another practice. My big question is how a relocation might impact my ability to recover from the flood and business policies, how my service interruption would pay, how I might have access to SBA money and of course how the issue of flood versus windstorm damage will affect me.”
"My hope is to recover enough money from the insurance to pay off my outstanding loans and to relocate to another location and purchase another practice..."
Dr. Chauvin’s concerns were shared by most of the doctors in attendance. It quickly became clear that the dentists three major concerns were: Insurance recovery for physical damage and practice interruption, the uncertainty and timing of patients returning to the area, and availability of capital to fund rebuilding.
In this article, we will attempt to provide affected dentists with some of the insurance- related information shared at the summit as well as presenting a case for creating a well- thought-out plan for the future.
Insurance Issues
The most significant decision regarding insurance reimbursement was made months, maybe years, ago when the insurance policies were purchased. The decision regarding which agent or insurer to pick, to buy federal flood insurance (FEMA reports that only 27% of businesses and 34% of homes were insured for flood under the Federal Flood Program), to include practice interruption, to buy extended period of indemnity, to purchase increased limits for coverage extensions (accounts receivable, service interruption, computer equipments, patients records, etc.), are obviously critical to today’s recovery. As contracts are renewed and renegotiated in the months to come, dentists are encouraged to purchase policies reflecting the coverage lessons learned.
The insurance contract is an indemnity contract; this means that the insurance company reimburses the insured for insured damages once the expenses have been incurred. However, insurance companies often agree to advances and preliminary payments based on a well-prepared claim.
Filing a Claim
Filing an insurance claim is a not an easy thing to do, and requires a good understanding of contract law, precedence established in previous cases, and negotiation skills. One of the frequent misconceptions of insureds is the role of the claims adjuster. Many of the dentists at the summit viewed the adjuster as the individual who prepares the claim for them. Nothing could be further from the truth. It is the insureds responsibility to demonstrate the scope of damage and to submit a complete claim. The adjuster works for the insurance company and, most likely, focuses on exclusions in the contract, looking for ways not to pay the claim.
The complexity of most claims in the hurricane Katrina and Rita disasters are significant. Most dentists will have to deal with at least two independent issues. The property damage claim and the resultant interruption of the practice. In many cases the dentists have to also deal with the independent negotiation of the separate flood coverage—a daunting task without expert support.
The following seven-step approach will guide the development of a well-prepared claim:
- Determine extent and type of direct damage in detail item by item
- Determine extent of practice interruption
- Evaluate insurance policies
- Evaluate other recovery options
- Organize loss documentation
- Present claim to insurer
- Prepare to defend claim once the insurer has responded.
Property Damage
The preparation of the physical damage claim, especially because of the potential issues regarding flood coverage, can be extremely complicated and should be completed by an expert. It is best documented by an itemized listing of all the real and personal property damaged or destroyed during the incident. Most policies are written on a repair or replacement basis, which entitles the insured to be reimbursed for the cost to either repair damaged property or replace it with new “similar” quality. In this regard, it is critical to first document and try to obtain agreement on the scope of loss. Next the amount of loss must be documented with as much detail as possible, supporting documentation of quotes and proposals to replace or repair the damaged property (provide actual quotes) is essential. The insurance adjuster will likely try to push replacement cost based on some list the insurance company provides. It is very unlikely that an insurance company will pay for damages and claims the insured has not presented and claimed.
Most contracts include a large number of coverage extensions. Each one of these extensions offers a possibility for partial recovery. However, unless a claim is presented by the insured the insurer will not pay or consider paying.
Once the claim is presented the adjuster will examine the scope of the claim presented, the actual costs and determines if a contract exclusion is applicable. If the insurer advises that all or part of the claimed loss is not covered under the policy they have to identify which coverage exclusion is applicable and how this exclusion limits recovery. The burden of proof is on the insurer to establish that the loss was contributed to or caused by an excluded risk or event.
Practice Interruption
Practice interruption is a significant portion of many doctors claims. The amount is calculated based on the actual coverage design in the policy; typically coverage is afforded for lost profits plus continuing expenses including some or all payroll. Total payout for practice interruption will be limited by a dollar amount or most likely by a maximum time period allowable. It is important to understand that the insured (in most cases) is entitled to recover the amounts that would have been earned had the loss not happened and expenses that are actually expended and not the amounts which might have been earned in past periods.
Most dentists have service interruption coverage in their contracts. In many cases the business interruption claim can be based on the interruption of power, gas, water etc., regardless of the damage to the practice itself. This could make a significant difference if the practice was damaged by flood and flood was excluded or limited to a certain amount. The insurer would take the position that resulting practice interruption would be likewise excluded or limited in the recovery. However, if the service interruption is caused by a covered event, the dentist might be able to recover by filing a practice interruption claim under this section of the policy.
Regardless, however, of the best coverage and the best claims presentation there will be a piece of a large claim that will not be recovered. On average and depending on broadness of coverage only from 50% to 80% of all property and business interruption losses are covered by insurance. It is important to note that the quality of the presented claim and back-up material could make a significant difference in the actual recovery. A swing from 15% to 20% is not uncommon.
Defending the Claim
Finally a word on “defending a claim.” A well-prepared claim is a well-documented claim. The insurance adjuster will likely document all interaction with the insured including all requests for information and interaction. It is a good practice to respond in a timely manner and in accordance with the terms of the insurance contract. Most of all, however, defending the claim means having the facts and presenting them in a professional manner. In some cases (thankfully only a few), the insured and the insurer will come to an impasse and agree to disagree as to what is covered or how a loss is valued and legal advise and the possibility of a lawsuit has to be examined. The reality is that this should truly be treated as the last option. In most cases it is recommended to try to settle the loss in as many areas as possible (Cash the check before the next step!) and only litigate over the items in dispute.
Building a Plan for the Future
The uniqueness of having this many practitioners considering rebuilding their individual practices at the same time—and in the same geographic area, along with the multitude of uncontrollable and controllable variables, the extensive interdependencies, and available next-step options, begs considering outside-the-box thinking.
Dentists in the affected areas are concerned about the risks involved in recreating their practices, especially if the shortfall of insurance recovery would force them to take on significant new financial commitments via privately or publicly funded loans.
It is strongly recommended to carefully analyze the economic recovery data, the expected return of patients, the potential number of returning dentists (Mississippi and Louisiana Dental Association can provide interested dentists with data.), and the most likely loss reimbursement from the insurance company. Under the current circumstances it might be best to consider an alternative to rebuilding a similar practice in the same neighborhood. For example, a group of dentists pooling their limited insurance recovery resources might be able to provide superior services to their patients by building a group practice. In doing so, they would not only reduce the total cost of rebuilding, but also streamline their future operating expenses and significantly improve their return on investment (RoI). Based on such an analysis, the dentist should evaluate various options, and work toward the ideal solution. The most common options worthy of consideration are:
- Group practice versus solo
- Same versus different site
- Timeshare/split schedules
- Same size, downsize, upsize
- Upgrade
- Go associate
- Temporary employment
- Retire/sell
- Wait and see
- Practice management
If the insurance recovery claim is properly positioned and the possible practice interruption payouts are optimized, the dentist should have adequate time to properly develop a business plan for their individual situation.
Most of the doctors attending the summits had already submitted partial claims to their insurers but quickly realized that they were potentially underestimating the total claim they were entitled to—and that they would be in a much stronger position of recovery if they enlisted professional help in preparing and submitting their final claim.
[At the conclusion of the] summit, Dr. Tim Chauvin shared the following observation[s] with the author:
It was great of Sullivan-Schein, Inc. and you to present the recovery summit. I was amazed to learn the extent of loss to dental practices and the approximate payout insurance companies should be responsible to pay. The large number might explain why insurance companies are acting much slower and are not as generous. You made it clear to me and all attending dentists that if I expect to receive what I’m entitled to under the terms of my policies I should get professional help.
The summit was also informative on finding the capital funding I will need to finance my future plans of buying a new practice. Different options were presented including bridge loans, US SBA loans, and private loans. Not all will be available to me, but I did learn which ones apply to my case.
Thank you again for the wonderful information. I look forward to hearing from you or [Sullivan-]Schein on where I can find professional claims help to make sure I maximize my insurance recovery.