Spreadsheet: c46b8612-c891-4aae-92d9-7630cbb90abd
Sheet: Insurance-CH.16

[NAME] | ANSWER | Last Updated
Has HUD done anything recently to accommodate those healthcare projects located in states, such as Florida, where professional liability insurance is difficult and expensive to obtain?  Are waivers available?  If they are, what levels of coverage have been accepted? | Yes.  We have done waivers to this.  As each project and policy (and area) is different, we would need to review the individual details of the proposal to comment on its acceptability. | 2012-02-01 00:00:00
According to notice 04-15 regarding Professional Liability Insurance for Section 232 Programs, the insurance provider must be licensed in the state the facility is located in.  Upon reviewing the insurance policy, it was found that the insurance provider is not currently licensed in the state the facility is located.  Does this require a waiver? | A waiver is not needed if the carrier is a surplus lines carrier. | 2012-02-01 00:00:00
What type of Professional Liability Insurance (PLI) policy does HUD require? | HUD requires the professional liability insurance policy to be either:  a. An occurrence policy which provides coverage regardless of when the claim is reported, as long as the occurrence giving rise to the claim occurred during the original policy period; or  b. A claims-made policy, which provides coverage for claims that are brought to the insurer during the policy period or during a designated, extended reporting period beyond the policy expiration.  Since the term of the policy is normally one year, the operator must also purchase an “extended reporting tail.”  The tail provides coverage for an extended period that shall be based on the maximum statute of limitations for filing claims of negligence, injuries, wrongful death, [NAME] care for the various States where the facilities are located. The tail coverage may be self-insured on a “cash front basis.”  Current guidance on PLI is provided in HUD Housing Notice H 04-15 | 2012-02-01 00:00:00
If an owner has formed a separate identity of interest operating entity, who in turn hired a separate non identity of interest management company to run the nursing home’s daily activities, and the professional liability insurance is not in the name of the management company, but rather in the name if their parent company, is the named insured is acceptable? | The PLI insurance policy must be in the name of the entity that is conducting the day to day operations of the nursing home. The PLI policy can be issued to the parent operator as long as each operating entity that is conducting the day to day operations of the nursing home is listed on the policy. | 2012-02-01 00:00:00
Have any waivers been approved on Professional Liability Limits?  In particular the $1MM per occurrence?  In several states we are seeing that it makes sense for owners and operators to keep this limit below the $1MM for liability and tort reasons. | Yes, waivers have been given in the past allowing a reduction of the per occurrence PLI limits.  The waiver requests in such cases included an analysis by the lender of the following:  1) 6-years loss history of claims,  2) potential claims against the operator/management agent via incident reports, 3) tort reform initiated in the state and 4) 3 year licensing survey. | 2012-02-01 00:00:00
OHP requires evidence of PLI coverage for statute of limitations period, and documentation from the state, which shows the statute of limitation period.  Does this documentation have to be from the state or can we get it in writing from the insurance agent or the borrower’s attorney? | Yes, you may include documentation from the insurance agent or borrower’s attorney.  Another option is to supply the information from the state's website, if available. | 2012-02-01 00:00:00
There are some states (like Texas, Louisiana and Indiana) that have lawsuit limitations on professional liability claims.  Would the LEAN team look at a reduced amount of Professional Liability Insurance (instead of the current requirement across the board of $1m/$3m) in such states? | Yes, we have provided such waivers.    HUD requires that the parent operator have a policy of $1,000,000/3,000,000. HUD must do a review of the liability insurance policy and the claims history to have comfort that the historical level of claims are adequate for the $1,000,000/3,000,000 limits. If not, HUD has the right to adjust the aggregate claims level to an amount higher that $3,000,000. The only reason to waive that is that the cost of the policy would make the project infeasible or if all of the facilities are in one state like Louisiana, Indiana or Texas that have strong tort laws with claims caps or where a state organization will pay the claims over a designated cap level like Indiana or Louisiana.  As for Texas, if an operator has all projects there, then HUD will accept the limits of the Texas liability tort laws, since the claims are capped for the operator by the law. While we could accept lower levels for the operator in that state, the parent operator must have adequate PLI coverage that meets HUD’s minimum requirements.  If the parent operator has projects that are outside a state which has tort laws, they would need this coverage, but if all of their projects are within the state (e.g. Texas) they could be below the HUD minimum levels but no lower than the state caps.  These are reviewed on an individually submitted basis. | 2012-02-01 00:00:00
We are processing applications for mortgage insurance for facilities located in Louisiana.  The facilities participate in the HUD-approved patient’s compensation fund in the State and are therefore HUD-compliant.  The operators are owned and controlled by a limited liability company which only owns facilities in Louisiana.    However, the individual owners of LLC, also personally own other limited liability companies, which in turn own and operate facilities outside of Louisiana.  Each facility outside of Louisiana has its own insurance policy and coverage limits.  As we interpret the 2004 notice, it does not seem to apply to natural persons, and was more geared to ‘parent’ or ‘corporate’ type operators that have all their facilities under one ownership umbrella and insurance policy.   Is this insurance structure acceptable, as the facilities are appropriately covered? | For the Louisiana Patients Compensation Fund (“LPCF”), HUD permits Louisiana-only policies the meet the requirements of the LPCF. | 2012-02-01 00:00:00
Is there anything precluding a nursing home operator from paying their PLI premium in 12 monthly payments with a slight (7%) interest on the payments instead of one lump sum annual payment, if financially this arrangement works best for them? | No, this is not a problem. | 2012-02-01 00:00:00
Can you tell me, on new deals, whether the controlling documents are directing that HUD be a loss payee (and thus have to co-sign the checks)? | This is a requirement of the Form HUD-92447, paragraph 8 (attached).   That form is a standard attachment to our firm commitments. | 2012-02-01 00:00:00
The current insurer for a facility's general liability/professional liability coverage is a risk retention group, and it therefore does not meet the HUD requirement of an insurance company with an "A" rating or better from A.M. Best Company as they are not a rated carrier by A.M. Best.  Can approval be provided by HUD to allow coverage written by this risk retention group?  If so, what, if any, additional information is needed for review? | Risk retention groups (RRG) are permitted as a PLI provider, but it must have an acceptable rating by AM Best or Demotech.  If the RRG does not have the appropriate rating, then OHP cannot accept the policy. | 2012-02-01 00:00:00
HUD requires that if the professional liability insurance is provided on a Claims-made policy, if the borrower changes carriers, can they opt to purchase a new policy from a new carrier that includes prior acts instead of purchasing an extended reporting tail from the expiring carrier? | Yes, if the new policy includes “prior acts”, then it would be acceptable in place of tail coverage as long as it covers the tort claims statute of limitation timeframe. | 2012-02-01 00:00:00
If an existing HUD-insured mortgage for a facility, in which the loan was closed prior to the insurance notice issuance in 2004, is looking to complete a 223(a)(7) refinance, however it does not have HUD-compliant insurance from either a rated-carrier perspective, or coverage perspective, is it acceptable for the facility to continue being insured with its own single policy?   Is a waiver necessary? | PLI policy on 223(a)(7) loans (where the original loan was endorsed prior to 2004) per Notice H 04-15:  As long as the current PLI has shown to be adequate to cover claims, it is not necessary that the facility obtain a policy as defined in Notice H 04-15.  Further, an actual waiver for HUD-2 is not required, but it should be noted in the Lender Narrative.  The OHP Underwriter will examine the policy and claims and include a note in the punchlist during underwriting.  In the event it is determined that the current PLI policy has not been sufficient, OHP may require the facility to obtain a new policy as a condition to commitment on the 223(a)(7). | 2012-02-01 00:00:00
If an actuarial study is required (if operator/manager of more than 50 health care facilities), should it be a funding analysis or reserve analysis? | The actuarial study should include both the reserve analysis and a forward-looking funding analysis.  The reserve analysis is a standard component of an actuarial study.  It looks at the claims history and current claims, including incurred but not reported (IBNR), and determines how much the organization should be reserving to pay current claims.  The funding analysis projects what the next year’s claims are estimated to be.  Commercial insurance policy limits or self-insured funding amounts are based on this projection.  This analysis may not be a standard component of an actuarial study but is useful in making prudent business decisions.  **This is a key analysis that HUD reviews** | 2012-04-01 00:00:00
Is it permissible to have a currently self-insured Operator obtain eligible PLI insurance coverage (per Notice H 04-15) for facilities being submitted to OHP, but keep the remaining non-FHA insured facilities as self insured? | It is permissible to have professional liability insurance for the HUD facilities (in compliance with Notice H 04-15 or its successors) and a different policy for the non-HUD facilities as long as the operator for the HUD facilities is different than the operator for the non-HUD facilities.    In general, HUD needs to be assured that a large claim on any facility owned/operated/controlled by a common entity does not threaten the financial viability of the HUD-insured facilities. | 2012-04-01 00:00:00
If a client has multiple healthcare facilities that they own, operate and manage (that are mix of conventional financing and FHA financing), and they are currently insured by an off-shore captive insurance agent that has never been vetted by HUD, can they establish separate Professional Liability Insurance (PLI) for the facilities now being proposed for refinancing?  This new, separate insurance would be from an agent that complies with Notice O4-15. | Per Notice H 04-15 for operators of multiple healthcare facilities:  “The parent or controlling entity must have professional liability insurance meeting HUD requirements on all entities that it controls or manages irrespective of how its facilities are financed.”   The rationale for this requirement is to protect the HUD-financed facilities in the event a large claim on any facility that this operator operates threatens the financial viability of the entire operating company.  Off-shore captives are permitted by HUD provided that they have an acceptable fronting entity (domiciled in the US and have an acceptable rating by AM Best or [NAME]).  [The fronting entity issues a PLI policy and processes claims financed by the operator.  The insurance provider obtains liquid assets from the operator (i.e. cash, cash equivalents, readily marketable securities or a letter-of-credit) that is sufficient to finance current and anticipated claims expenses.] | 2012-04-01 00:00:00
Does OHP have a requirement for Loss of Income insurance? | As of April, 2012 there is no such requirement; however we strongly encourage the borrower to obtain coverage.    Additionally, the Section 232 Development Handbook (expected to be released later in 2012) is proposed to include a requirement for business income/rent loss coverage. | 2012-04-01 00:00:00
What is the different between a traditional commercial insurance policy and an insurance policy on a "cash front" basis? | An insurance policy on a “cash front” basis is different than a traditional commercial insurance policy.  A cash front means that the company is reserving cash (or cash equivalents) to pay its own claims – a form of self-insurance.  Please refer to Housing Notice H04-15 III.C.4.d (page 12) for the description and guidance.  http://www.hud.gov/offices/adm/hudclips/notices/hsg/files/04-15h.doc | 2013-03-01 00:00:00