Malpractice Insurance: What Changes Mean

Malpractice insurance is a type of professional liability insurance that covers healthcare providers against patients who file suits against them, alleging that they were harmed by the professional's negligence or intentionally harmful treatment decisions. This insurance is essential for physicians and is required by law in most states. There are two basic types of malpractice insurance: claims-made and occurrence. Claims-made policies are the most common and provide coverage only for incidents that are reported while the policy is active. On the other hand, occurrence policies are more expensive but provide indefinite coverage for incidents that occur during the policy period, regardless of when the claim is filed.

Claims-made policies

If a policyholder drops a claims-made policy, they are not covered for any suits filed later unless they pay for "tail coverage". This is an extended reporting endorsement that covers any claims that could arise after the policy has ended. Tail coverage is often very expensive, sometimes three times the amount of an annual premium, but it is essential to ensure ongoing protection.

If a policyholder changes carriers, they may be able to get "nose coverage" from their new carrier, which covers prior acts. This is an alternative to tail coverage and is usually a cheaper option.

When a physician changes jobs, they may be required to purchase tail coverage, depending on their contract. It is important to understand the terms of the malpractice insurance provided by an employer, as well as any requirements to purchase tail coverage upon departure. This should be considered when evaluating job options and contract negotiations.

When a physician moves to a new state, they need to ensure they are covered in their new location, as well as for their prior acts exposure in the previous state. This can be achieved through various strategies, such as purchasing a claims-made policy that includes prior acts coverage or buying tail coverage.

When a physician sells their practice, they often need to arrange for their own tail coverage, as the tail is typically the responsibility of the physician.

Occurrence policies

Occurrence malpractice insurance policies cover incidents that occurred during the policy year, regardless of when the claim is reported to the carrier. This means that any malpractice occurrence will be covered by the insurance carrier, provided it was the carrier at the time of the alleged event, even if the carrier changes before the claim is filed.

For example, if a malpractice policy was in force from January 1, 2018, through December 31, 2021, any medical malpractice claim that happened in that window is covered—even if the claim is filed after the policy expired. As long as the policy was active when the alleged incident took place, the occurrence policy will cover the claim.

Occurrence malpractice insurance policies have two types of coverage limits: the per-occurrence limit, which is the total sum an insurer will pay for a single claim, and the aggregate limit, which is the total amount the insurance company will pay for a period of time. For instance, a $1 million per occurrence limit with a $3 million aggregate annual coverage limit means that the insurer will pay up to $1 million for any single claim and a maximum of $3 million total for all of the claims made against the insured.

Individual vs group policies

There are two ways to acquire a professional liability insurance policy: through an individual policy or a group policy.

Individual Policy

An individual policy is purchased by an individual for themselves. For a PA's needs, an individual policy is preferred because:

• You control the proof of insurance and do not need to rely on an employer to verify coverage.
• You are the only named insured party, preventing possible conflicts of interest that can happen under a group policy.
• The policy provides separate limits of liability; your limits will not be reduced because you share coverage with other employees.
• An individual policy should cover you for any additional job, whether working part-time or volunteering.

Group Policy

Some employers may insist that employees are covered under a group policy. This is because some advantages for individuals become disadvantages for employers. For example, if there were a lawsuit, each group member would have their own attorney representing their interests. However, employers would prefer a single attorney managing a "global" settlement of any claim, regardless of personal interests.

Additionally, employers may refuse individual coverage because their insurers will not permit employees to have individual policies. Insurers also want settlement processes to be as streamlined as possible and do not want to negotiate with a personal attorney.

If you must be covered under a group policy, it is important to:

• Obtain a copy of the entire policy, or at least a copy of the "certificate of insurance", which summarises the terms of coverage.
• Verify that you are listed by name on the policy.
• Verify whether you have occurrence or claims-made coverage.
• Obtain copies of the policy or the certificate of insurance every year. If it is a claims-made policy, you should continue to get copies even after leaving the employer.

Tail and nose coverage

Tail Coverage

Tail coverage, also known as an extended reporting endorsement, is crucial for physicians transitioning between jobs or insurance policies. It provides protection for claims that may arise after a physician has cancelled their malpractice insurance policy or retired. This type of coverage ensures that physicians remain protected even after their primary malpractice insurance policy has expired, as medical malpractice claims can take years to surface.

The cost of tail coverage is typically very high, often two to three times the amount of an annual premium. However, it is generally a wise decision to purchase tail coverage to safeguard the physician's personal assets and avoid substantial financial and legal consequences.

Nose Coverage

Nose coverage, also referred to as prior acts coverage, is an alternative to tail coverage when changing insurance carriers. It involves the new insurance carrier providing coverage for incidents that occurred under a previously terminated policy. Nose coverage is usually less expensive than tail coverage and ensures continuous protection for the physician.

When changing insurance policies, it is important to carefully consider the options of tail and nose coverage to ensure there are no gaps in protection.

Consent-to-settle clause

A consent-to-settle clause is an important aspect of a malpractice insurance policy. It gives the insured a say in how their claims are handled and settled. This clause requires that the insurance company obtains the insured's written consent before settling a claim. Without this provision, the insurance company can settle the claim without the insured's approval.

The consent-to-settle clause is especially relevant for doctors, as malpractice cases often settle due to the higher costs of going to trial. Settlements can have negative impacts on doctors, including damage to their reputation, increased malpractice premiums, and difficulties in obtaining future coverage. Therefore, doctors should ensure their malpractice insurance policy includes a consent-to-settle clause to have a say in the settlement process and protect their interests.

However, insurers may try to limit their liability in case they want to settle by including a "hammer clause". This clause stipulates that if the insured refuses to consent to a settlement, the insurer's liability will be limited, and they will not pay any additional costs that exceed the initial settlement amount. This can put the insured in a difficult position, as rejecting a settlement may result in significant financial consequences.

To maximize their coverage, doctors should aim for a pure consent-to-settle clause without any limitations, such as a hammer clause. This ensures that the insurer cannot settle without the insured's approval and provides the insured with full control over the settlement process.

Frequently asked questions