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It comes with the territory. When you’re a successful professional, you become a prime target for litigation. But are you prepared for every unfortunate scenario that could ruin your retirement? Most dentists aren’t. In this episode of Dentist Money™, Reese and Ryan discuss the liability risks that most people don’t know about and how to protect yourself against expensive lawsuits.
Reese Harper: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper here with my co-host, Sir Ryan Isaac.
Ryan Isaac: Hey Reese. I am really looking forward to today’s show.
Reese Harper: Why are you talking so slow then?
Ryan Isaac: This is for dramatic purposes okay? We are going to spread our wings on this one. This one is full of puns. Normally we refer to this show as a podcast, but you are going to enlighten us with your knowledge about birds. And we’re going to call today’s show a birdcast.
Reese Harper: Love it. Anyone who knows me knows I love the bird. And as you mentioned, I do like to dabble in ornithology, which for the layperson means, “study of birds.” So I just think it’s important that I educate you on that subject.
Ryan Isaac: Ornithology. I appreciate that. What have you got for us on today’s birdcast?
Reese Harper: First Ryan, I’m going to teach you about the infamous robin. As most people know, robins can be very territorial, and if we would have chosen the ornithology career over financial planning, you and I could have spent some more time observing bird behavior together.
Ryan Isaac: That’s actually a pretty funny visual. I can see us—you’re camoed up; we’re hunkered down in some cornfield next to a fence where all the robins hang out I assume. After a few hours you would say, “Hey Ryan I just made an observation—quick, get out your notebook and write this down.”
Reese Harper: Exactly, because as the junior ornithologist, that would be your job. I observe; you write it. Don’t give me any grief. Just write it down. See, you’re already catching on. Now one of the things I would like to do if I were in this career—my long lost love of ornithology. I would like to place a stuffed red-breasted robin on the fence close to the other robins, and as soon as they saw the stuffed robin, the other robins would start making all kinds of noise and start pecking and flapping and attacking the stuffed robin. That would actually happen.
Ryan Isaac: I didn’t expect that.
Reese Harper: Yeah, and then I would take the robin down to teach you another principle about ornithology, and everything would just turn back to normal. You would be taking some notes, and I would put another robin up on the fence. Only this time, the robin wouldn’t have a red breast. And what do you think would happen, Ryan?
Ryan Isaac: Well as the junior ornithologist, I would probably say nothing would happen.
Reese Harper: Exactly. They would leave it alone. So you would jot down another note because you’re a good junior ornithologist, and the next thing would really blow your mind. I would then lift a stick up with a clump of red feathers on it, and the robins would lose their minds.
Ryan Isaac: So it’s not even the form of the bird—it’s not what troubles these young robins.
Reese Harper: No. It’s just a clump of feathers.
Ryan Isaac: That’s actually pretty interesting.
Reese Harper: See? I told you it would be. It’s a very interesting career.
Ryan Isaac: This reminds me of the time we were driving down Foothill and you saw the Red Robin restaurant, and you started going bananas. You went inside and you attacked one of the 100% Angus beef patties. Would you say that there’s any correlation between your behavior and the bird study?
Reese Harper: I wouldn’t be surprised, okay? In both cases we’re talking about a conditioned response. This is when I get serious and I want the listeners to pay attention. The takeaway from the robin study is that these robins were exhibiting what’s called a “fixed acting pattern.” They weren’t reacting to the bird—they were reacting to what? What do you think Ryan?
Ryan Isaac: The color red.
Reese Harper: Yes. It’s like an auto response. There’s a book called Influence by Robert Cialdini that talks about how all animals in the animal kingdom, not just robins, exhibit this type of behavior.
Ryan Isaac: Now I’m sure our listeners are anxiously waiting to hear how these birds can help dentists make smart financial decisions.
Reese Harper: Yeah, I think it’s pretty obvious at this point, but maybe not. If you were paying attention you could have caught the nuances there. But the direction I’m going with this has to do with human behavior because humans also experience fixed response behavior patterns. There’s one in particular that impacts dentists in a big way. This time it’s not their own behavior, but the behavior of people in society who like to sue rich people more than they like to sue people with less money.
Ryan Isaac: Okay, so you’re saying people are conditioned to sue individuals with deeper pockets, and having money is kind of like the red-breasted robin in the world of litigation?
Reese Harper: Yeah, and all the things that create wealth for dentists like owning a business, bringing in a lot of patients, and accumulating assets are also the things that make them an attractive target. There was this article that was in the U.S. News and World Report that talked about wealthy people’s perspective on getting sued, and they said that 20% of people with less than a million dollars worry about being sued. So people with not a lot of money don’t worry about being sued, but over 80% of wealthy people worry about being sued. It’s one of their top concerns, and it’s also statistically much more likely.
Ryan Isaac: In fairness, if I’m an attorney my ears are going to perk up a little bit when I know someone who is wealthy is involved in a potential lawsuit, right? Besides the fact that we live in a society that’s becoming more litigious than it was before.
Reese Harper: Yeah, and this podcast—some people that are listening to it are probably in a position where they think, well I’m not wealthy so it doesn’t matter. But lawsuits and litigation affect all of us, regardless of how much we have. Wealthier people tend to worry about it a lot more and probably for good reason. I just want to make sure and make that clear so we don’t have a bunch of people tuning out right here for the rest of the podcast. It seems like million dollar judgments are just getting really common these days. They are almost becoming the rule more than the exception.
Ryan Isaac: And it seems like the wealth of the people has a lot to do with how it all plays out.
Reese Harper: Plus, I think society expects more out of people who have better education and high profile careers. In a lot of people’s minds, when you reach a certain level of wealth or status you should be living up to a higher standard of conduct.
Ryan Isaac: You shouldn’t have backed up to me in the Costco parking lot. You’re a dentist! What’s wrong with you? So I’m sure a lot of our dentists have seen this or maybe had experiences with being sued before. That’s where the right kinds and amounts of insurance can play a big part of protecting your money and your retirement. Let’s talk about that for a minute—a couple months ago we did an insurance evaluation as part of our Elements planning process for our clients to make sure they weren’t exposed to any large risks. And since this is kind of fresh on our minds, what were some big takeaways that you had Reese that we could share here about that?
Reese Harper: Well we definitely recommend that dentists take a look at the liability limits that are on their home, auto, business, and malpractice policies on a regular basis. You need to look at the liability limits at least each calendar year as your net worth and assets increase. Your personal liability coverage—if you look at your homeowners and your auto and business coverages, you’ll see a lot of names and a lot of numbers. It gets really confusing really quickly. But there’s one that’s called Per Occurrence or Per Incident liability. The liability is what protects you in the case of a frivolous lawsuit or a claim against you that was really an accident. And that’s from a car accident or anything else, but just focus on the liability part of your policy definition. So in some cases, you need to have enough of this liability coverage to make sure your whole net worth is covered—everything that you are worth. But if you don’t know how to calculate that, email us and we can help. But depending on the type of assets you own and how you own them, you may not need to cover your entire net worth, but your liquid assets or your assets that are not inside of a 401K or equity and property—those are at a high risk of being tied up in a lawsuit if you get a judgment against you.
Ryan Isaac: Most dentists understand what it means to have an umbrella policy that gives them coverage beyond basic liability insurance to protect them against lawsuits, but a lot of times they don’t know exactly what the umbrella policy covers or what the limits are. There’s a lot of risks out there that a lot of dentists have never probably thought about before. You have a few examples or situations that could lead to some of these expensive types of lawsuits.
Reese Harper: Yeah, and you mentioned a new term that we should probably mention—an umbrella liability policy is different than just your regular liability on your home, auto, or business. And so am umbrella is going to basically take care of everything personally or everything from a business perspective that isn’t defined in the policies perfectly. Now that everybody’s using social media, there’s a lot higher risk with being charged with what they call liable or slander. That’s basically when something is written or said about somebody that could damage their reputation. There’s multi-million dollar lawsuits in this category happening every week. Some of you might think this doesn’t apply to me, but anyone who lives in your household or anyone who is a dependent—anything they say or do on social media can come back to also affect you. I just tell our dentists that if they are blogging or writing on their Facebook pages or submitting comments on someone else’s page or if anyone in their family is, make sure that you educate everyone on facts before you just go and start posting things online. If anything is a gray area just back off and try not to be so cranky, and don’t get into those social media feuds. I think a lot of times people can get misunderstood, and there’s a lot of defamation cases right now, so just Google them and look at them online. I don’t know if you’ve had any experience with that.
Ryan Isaac: I tend to yell at people online a lot. Mostly in YouTube comments or Yahoo forums. What’s something else you can think of?
Reese Harper: If you own a property with a pool, there’s a possibility of someone drowning. That’s an unlikely outcome, but it happens a lot.
Ryan Isaac: Trampolines?
Reese Harper: If you have a trampoline in your yard, there is a risk of somebody getting seriously injured or even paralyzed—neck injuries, seriously spinal cord injuries. Those are much more common when you have a trampoline than not.
Ryan Isaac: I actually remember two families from my neighborhood where I grew up sued each other. It was a big problem from a trampoline and ankle break or something. Dog attacks aren’t uncommon.
Reese Harper: This is one that’s kind of surprising. According to Forbes and 20/10 State Farm paid out more than $90 million for about 3,500 dog bite claims. I read an attorney’s website that talked about a judgment in Maryland for $5.9 million for a dog bite. How is that possible? As with most liability claims, when you sue somebody, it depends on the person being involved in the individual accident. Lost wages is one thing that people sue for; pain and suffering; property damage. Those things are always different depending on the person that’s affected.
Ryan Isaac: One we’ve been talking about with clients lately who have other drivers in the home is there’s a lot of risks while driving—texting, teenage drivers, do you want to talk about some of that too?
Reese Harper: Yeah, texting and driving has been a huge issue lately, and a lot of our clients have teenage kids that carry a lot of liability. I’ve actually seen some pretty sad situations in my own family where things can happen, and sometimes the accidents can be caused by the behavior of passengers. It’s not just the liability of the driver. So even if your kids are in cars where there is an accident, sometimes they can be liable as a passenger depending on their involvement in that accident. So if any of those drivers or passengers are your dependents, accidents create a lot of liability.
Ryan Isaac: What about a soccer mom or soccer dad driving other kids around in carpools?
Reese Harper: People don’t think about the risk that comes when you drive other people’s kids around.
Ryan Isaac: My wife carpools every morning to school.
Reese Harper: If you’re in a carpool driving a bunch of kids to soccer practice, you carry a very different level of liability than if you’re just driving yourself to the store.
Ryan Isaac: Anything else?
Reese Harper: Probably one other one that people don’t think about—if you’re serving alcohol at your home or if you’re having a party where you’re serving alcohol, you’re carrying different liability, especially if it’s coming out of your residence and people are taken to the streets.
Ryan Isaac: And it makes sense as we go through that list—you can see how it’s easy for people not to really think about these things. They seem logical, but they are kind of nuanced.
Reese Harper: Yeah, and as a business owner we don’t have time to go through every possible risk, but there’s tons of liability that you’re under at the office with employees that are traveling for business purposes, who are making bank runs or food runs. If anything is done by one of your employees, that’s also a major factor in your own personal liability. Your liability limits need to be assessed at both the business level and the personal level, and the reason we talk a lot about personal today is because a lot of times that’s where a lot of dentist’s net worth ends up sitting is on the personal side of their balance sheet.
Ryan Isaac: And you can see even though people might think about these things, they just might not know about how they are covered or protected. They might just assume they are covered under some current homeowners or auto policy that even those examples you mentioned, they would be covered somehow.
Reese Harper: Yeah, I mean usually most policies will have some basic level of liability–$100,000 minimum for like a home and $25,000 maybe for an auto, but that’s not going to be enough to cover you in a lot of situations I just listed. I don’t know if you know this, but when I was two, I actually got attacked by a dog that my uncle brought over to our house.
Ryan Isaac: Sorry I laughed. What kind of dog was that?
Reese Harper: I actually think it was some mix between—it was a mutt.
Ryan Isaac: A mangy Idaho mutt.
Reese Harper: I was outside messing around, probably pulling on the dog’s tale or trying to ride it like a horse. But it turned on me and ripped open my face pretty good and sent me to the hospital. I had a lot of scarring and stuff, and it bit me quite a few times in the face and scalp. So I will lay that out there and just say that even though my beard covers up all my scars, it was a pretty insane moment for me. Now the reason I bring it up is because in Idaho, you don’t sue your family for bringing over a dog. But it made me think about as I was putting together this podcast, how many things that happened to me growing up that I never sued someone for but definitely could have if I was the wrong person. Litigious people tend to look for opportunities where they are being wronged in their life, and they have a history of suing people. You don’t know when you are going to get on the losing end of that battle when it’s an accident, but you made a mistake of bringing a dog over to your brother-in-law’s house and it took him out.
Ryan Isaac: Okay so give our dentists some parting words of advice here. How can they make sure they have the right amount of coverage for the right types of things?
Reese Harper: I kind of said this, but make sure and calculate your net worth at least once a year, and then take a look at how your net worth is composed. What I mean is—how much is in real estate? How much is in practice equity? How much is in liquid cash, 401K accounts, non-qualified accounts? Some of these assets like a 401K have really good asset protection laws, where a mutual fund in your name doesn’t. A good financial advisor can help you measure your net worth and then estimate the right amount of liability insurance that you should carry above and beyond what you might have on your existing home. And your insurance agent can definitely help a lot with this; they are much more qualified than an investment advisor would be or any of your other advisors. But what you want to do, is your financial advisor (if he or she is doing a good job) has a good, accurate view of your net worth and they know where your assets are sitting so they can inform your insurance agent regularly about how your wealth is changing. A lot of times insurance agents just don’t have as much information about how your net worth is changing dynamically, and so sometimes the coverage amounts you have—at least in our experience we have found it’s been very helpful for us to interact with our clients insurance agents because coverages are needing to be adjusted almost every year, and so you need to add an umbrella or make sure your liability limits are high enough at least on your base policies. Usually you can get base policies up to a million dollars of liability protection in a lot of cases, but if you have to go above and beyond that, you’ll need an umbrella. So that umbrella is something you can add to your business insurance or to your personal insurance, and it protects you from the unexpected liability that comes up that we overlook a lot. A cool thing is it’s pretty inexpensive, too. At least once a year just take a look at it; make sure that you don’t have too much or too little, and gradually ratchet it up as you need to, and decide each year how much liability protection you need. In most cases, that will be the best attorney that you ever paid for is that insurance policy. You can also do other forms of protecting your assets with entities and moving things around that an attorney can help with, but I think regardless of whether you do that, it’s just a good idea to make sure that insurance is there as a primary risk-management tool.
Ryan Isaac: Thanks Reese, we’ll call that good for today.
Reese Harper: Was that boring?
Ryan Isaac: No, it was fascinating.
Reese Harper: That’s a long time of me talking about liability.
Ryan Isaac: There were a lot of animals in that one.
Reese Harper: And I know we said it was going to be a bird cast, but I hope our listeners are okay with financial advice, too. It wasn’t only about birds.
Ryan Isaac: As a bird expert though to close this out, I’m sure you have a favorite birdcall.
Reese Harper: I’m not gonna do that. You’re not gonna get me to do a birdcall.
Ryan Isaac: You have a birdcall. What do we got, like a goose?
Reese Harper: No one will trust me either any of their future after I make this birdcall, but I’m going to go ahead and do it because Ryan is asking me to. It’s the soothing melody of a goose. Are you ready, Ryan? [goose noises] Yeah, I have no dignity right now.
Ryan Isaac: Yeah, we are probably going get a bunch of geese smashing into our windows at any second, so let’s close this thing up. Thanks to everyone for joining us—remember please leave us a review on the podcast. If you’d like more information, follow us on Facebook or visit our website dentistadvisors.com. You can sign up for our free newsletter or you can schedule an appointment on our calendar.
Reese Harper: Carry on, my friends.Insurance