While you should never underestimate the power of a knowledgeable professional when dealing with your medical malpractice insurance, it is also important to be empowered with knowledge yourself. The medical malpractice insurance marketplace is difficult to understand and lack of understanding often leads to mistakes and not having the coverage you need. Diederich Healthcare has taken steps to facilitate a better understanding of the insurance industry. We want to provide you the tools you need in order to make make informed decisions regarding one of the most important purchases your practice will make.
Diederich Healthcare has develped this section as an insurance resource for you. In this area, what we call "MedMal 101", you will find information to help you understand your policy and whether you have the coverage needed.
- What kinds of policies are there?
- How important are financials when choosing a company?
- Primer on Tail Coverage
- What is the difference between Admitted and Non-Admitted Carriers?
- Read the small print
- Understanding Limits of Liability
- What does the insurance company need from me to provide coverage?
Claims-made vs. Occurrence Coverage: There are substantial differences between the 2 most common forms of medical malpractice insurance. Claims-made policies are the most common type available to physicians today.
A claims made policy covers events that occur:
- During the policy period (on or after the retro-active date) AND
- Are reported while the policy is still in force. If you would like the company that you have claims-made coverage through to cover your claims after the policy is not longer in force, tail coverage is required (discussed in another section).
An occurrence policy covers events that occur during the policy period regardless of when they are reported as claims. Because it is nearly impossible to predict the cost of future claims in today’s medical malpractice environment, occurrence policies have become nearly extinct for medical malpractice coverage.
AM Best Ratings: The financial strength of your insurance company is a very important consideration. AM Best is the most widely used company to evaluate the financial health of insurance carriers. If possible, an AM Best rating of “A-” or better is desirable for the carrier you choose for your professional liability coverage.
The “tail” (extended reporting endorsement) provisions are among the most important variables between policies to consider.
Because a claims-made policy will only cover you if the event happened while the policy was in force (after your “retro-active” date) AND was reported to the carrier while the policy was still in force -- you cannot just leave your current carrier and start over with anew insurer!
You need to either purchase the extended reporting endorsement (“tail”) from your current carrier OR purchase prior acts (“nose”) coverage from the new insurance carrier. Purchasing tail coverage from your present carrier effectively converts your claims-made policy into an occurrence policy because it allows you to report claims in the future to that carrier even though the policy period has ended. If you purchase tail coverage from your current insurer and start over with a new insurance company you will have to new retro-active date.
Prior acts (or “nose”) coverage allows you to transfer your existing retro-active date to your new insurance carrier -- eliminating the need to purchase tail coverage from your last carrier. It is usually less expensive to obtain prior acts coverage from the new company than to buy tail coverage from the old carrier and then purchase a first year claims-made policy from the new company.
We cannot over-emphasize the importance of your retro-active date. Most physicians we work with are not sure what we mean by retro-active date when we are collecting their information. Your retro-active date is the first day you became insured by a claims-made policy. That date will follow you for the rest of your medical career in most cases.
FREE “Tail Coverage”: Many insurance companies offer free tail coverage if a physician has been continuously insured by that carrier for 5 years and is at least 55 years of age upon permanently retiring from the practice of medicine -- or has been continuously insured with the company for 10 or 15 years and is younger than 55 when he/she retires.
An insurance company that is licensed and regulated by a State Department of Insurance is known as an “admitted” carrier in that State. Because the company is “admitted” its policy holders are protected by the admitting State’s “Guarantee fund.” This fund affords policyholders some protection against the insurance company becoming “insolvent.” Check with your state’s Department of Insurance for details of it’s guarantee fund and for a list of the malpractice insurers which are “admitted”.
Often, a physician simply cannot obtain coverage from an admitted carrier because of past claims history, licensing issues, or high-risk procedures in the doctor’s practice. For example: In some States - Bariatric Surgeons will be declined coverage from every admitted carrier in that State.
Excess & Surplus Lines (non-admitted) Carriers usually become the best option for so called “higher-risk” practitioners. An E & S carrier is not regulated by the State’s Department of Insurance and therefore, is not subject to the “guarantee” fund. However, your State’s Department of Insurance must approve the Excess & Surplus Lines Company for it to be a viable option for you.
Defense Costs “Inside” vs. “Outside” policy limits:
If your policy pays defense costs “outside” the limits of liability then your defense costs do not erode the limits of liability of your policy. As an example - if your policy limits are $1 million per occurrence and $3 million aggregate and your defense costs for a case are $100,000, you would still have $1 million to cover a potential award for that claim. If your policy pays defense costs “inside” the limits of liability then you would have only $900,000 left to cover a potential award in the previous example. Clearly - it is preferable to purchase a policy with defense costs “outside” the limits of liability.
Incident Reporting vs. Written Demand for Damages:
How each insurance company defines a “claim” is another important consideration when comparing policies.
“Incident reporting” allows the physician to report an adverse outcome to the carrier as a potential claim. This is important because for a claim to be covered under a claims-made policy, the incident must BOTH happen AND be reported as a claim while the policy is in force.
If an insurance company requires that the insured receive a “written demand for damages” in order to consider a claim to be reported - then the physician must wait to be sued before the claim is recognized! This can be a real problem for physicians wishing to change professional liability carriers: Most insurance companies would decline to offer a policy to prospective clients who can expect to be sued in the future for past adverse outcomes. The carriers often consider such a situation to be the same as “buying future claims.”
Consent to Settle Clause & “Hammer” Clause:
The best interests of the insurance company ARE NOT ALWAYS the same as YOUR best interests. You should try to obtain a policy with a “consent to settle” clause which requires the carrier to obtain your written permission to settle a claim against you. If not, the carrier can settle a claim that you believe is very defensible without your permission.
A “hammer” clause is one in which the insurance company must obtain your written permission to settle a claim against you BUT YOU ARE RESPONSIBLE for all costs exceeding the amount of the settlement proposed by your carrier if you will not agree to that settlement. If you push the case to trial and you win -- you avoid having the proposed settlement becoming a permanent part of your claims history. But if you lose -- you will have to pay the difference between the amount of money the case could have been settled for and the actual costs of awards and extra defense.
Review Policy “Exclusions”:
The exclusions of an insurance policy state what the policy WILL NOT cover. For example: Most individual practitioner’s policies specifically exclude coverage for duties as a “medical director.” Your should study very carefully the exclusions of your current and any future medical malpractice insurance policy.
Your limits of liability are what the insurance company will pay on your behalf in the event of a claim. If your limits of liability are “$1,000,000 / $3,000,000” it would mean that the insurance company would pay a maximum of $1 million per occurrence and $3 million per year for claims. For further clarification, refer to the examples below and assume limits of liability of $1,000,000/$3,000,000:
In one year you have 4 lawsuits each for $800,000:
The insurance company pays $3.000,000 and you are responsible for $200,000.
In one year you have 2 lawsuits each for $2,000,000:
The insurance company pays $2,000,000 ($1 million each) and you are responsible for $2,000,000 ($1 million each).
In one year you have 9 lawsuits each for $20,000:
The insurance company would pay everything.
So, depending on your individual risk - there are a wide variety of limits of liability available that may be an attractive option. However, please note that most states have minimum requirements for limits of liability should you have hospital privileges.
Different insurance companies will have different requirements, but generally it is helpful to provide the following:
- Completed Application
- Curriculum Vitae
- Copy of Medical License
- Copy of DEA License
- Previous or Current Policy Declaration Page
- A copy of an advertisement (if available)
- Loss History Reports for all insurance companies you have been with for the last 10 years.
It is important to provide as much of this information as possible and to be truthful on the application so that the insurance company is aware of exactly what you do and you get the coverage that you need.