To ensure procedures that seem like harmless aesthetic treatments don't turn into costly cosmetic surgery nightmares for liability insurers, underwriters need to keep their eyes open and ask questions, according to two experts.

Indeed, there's more to underwriting medi-spa risks than just trying to understand what services they provide, said Nancy Huddlestun, assistant vice president and senior underwriter for General Star Management Co. in Chicago, and Kathleen Johnson, senior claims attorney for Deerfield, Ill.-based Shand Morahan & Co.

“It's going that one step further and asking, who is doing the laser? Who exactly is doing the microdermabrasion? Who exactly is administering botox injections?” warned Ms. Johnson during a presentation at the Professional Liability Underwriting Society international conference last year.

“The risk of claims varies depending on the answers to those questions,” she said.

Ms. Huddlestun said a medi-spa underwriter needs to examine the qualifications of the medical director and the sophistication level of the spa by reviewing documents, such as the curriculum vitae of the director and procedure protocols.

“One of documents we're quite adamant about is the good-faith exam,” she said, referring to a form that gives the medical and surgical history of a client seeking treatment from a spa. Taking such a history “is not an activity that should be relegated to a receptionist or even a medical assistant,” she said, noting that General Star wants to see a registered nurse or higher-credentialed professional taking the information.

In addition, the form must detail the skin history of the patient, especially when laser treatments are being performed, she said.

Ms. Huddleston said the documentation that medi-spas provides to insurers can be anywhere from four-to-40 pages long. “If it's four pages, it's probably not sufficient,” she said, also telling insurers that to avoid getting too much documentation, they should work to give useful direction to brokers about what they want to see.

“These are not particularly large premium accounts, and you really have to conserve your time,” she said.

Speaking from the perspective of a claims professional, Ms. Johnson stressed that critical documents to review are the agreements of understanding–”informed consent” forms–that patients sign prior to procedures, which are “going to be your best defense at trial when [patients] say, 'I never knew this could happen to me' or 'I didn't agree to this,'” she said.

Ms. Huddleston said her firm wants to understand how much time the director devotes to the spa's administration and performance of procedures, and takes a dimmer view of those who spend less than 20 hours per month at the facility.

She said medi-spa premiums are developed based on both number of procedures performed and the practitioner.

Ms. Johnson noted that while state regulation requires medical procedures to be performed by an M.D. or by someone under an M.D.'s supervision, they differ on meaning of “supervision.”

“Most states uniformly say that a medical procedure…is anything that affects the structure and function of the skin, [but] in…Florida, an M.D. can supervise from an office 75 miles away,” she said. “In Louisiana, there is some regulation, but it says only an M.D. or dentist can wield a laser. So you have dentists entering into the medi-spa business.”

With respect to varying legal environments, Ms. Johnson also warned that even if a state has passed tort reforms imposing caps on noneconomic damages, not all medi-spa services fall under the caps.

She also suggested liability underwriters scrutinize the prices medi-spas charge.

“Allergan is the company that has the monopoly on Botox. So if you're getting an application and seeing prices for Botox that are really very different from the competition, you've got to wonder if [the spa is] diluting the Botox,” she warned.

In addition, she cautioned underwriters to really “dig down” to understand the services being provided, recommending they endorse policy exclusions for those services they are not comfortable with.

Referring underwriters to the Web site of the International Medical Spa Association, which has a vocabulary of medical spa procedures, (http://www.medicalspaassociation.org/vocabulary.htm), she read off descriptions of some that she personally found alarming.

Dermaplaning is defined as a procedure in which “an aesthetician grazes a surgical scalpel across the face to scrape away dead cells. As a claims person, I'm not real excited about that,” she said.

“If you're not on board with lipo-dissolve or dermaplaning, then make that clear” with tight policy language, Ms. Johnson said, explaining that “the worst thing from a claims perspective” is to have an underwriter later say, “'Had we known that they were doing this, we would never have underwritten the risk.'”

Ms. Huddlestun said General Star is writing lipo-dissolve, a cellulite treatment in which a substance is injected under the skin to dissolve fat cells, but that medi-spas offering this treatment can face challenges in securing professional liability coverage. She noted some carriers don't want to cover lipo-dissolve because the injected substance is not subject to approval by the Federal Drug Administration.

Other treatments that worry carriers have characteristics similar to surgical procedures, such as Smart Lipo and Contour Threadlifts, she said, describing the first as a cellulite treatment in which fat is drained through an incision and the second as a “lunchtime facelift” using sutures.

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Documents Key In Medi-Spa Underwriting

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