Keep calm and cover your tail

Posted by | April 24, 2015 | No Comments
keep-calm-and-cover-your-tail

For decades, the claims-made policy form has been the leading choice for physicians’ medical malpractice insurance. Most individual doctors, group practices, and hospitals will someday feel the sticker shock associated with an expensive tail quote from their insurance carrier.

“The good news is that they now have choices,” says Diederich Healthcare CEO and Chairman Jeff Diederich. “Our team of experts proudly brings a multitude of options to the table.” Not only do healthcare providers now have the ability to choose the carrier, but also they can compare options that include a range of liability limits, deductibles, and reporting period lengths. “The advantage of working with one of our licensed brokers is that you can compare multiple solutions to one problem without having to explain your situation more than once. You can get all the information in simpler terms so it is easy to choose the best option.”

Example: Group Closing Practice

The XYZ Emergency Physicians Group has a claims-made policy with Acme Insurance Company. Acme provides $3,000,000 per claim/$5,000,000 aggregate limits of liability with a $10,000 deductible and a 7/1/1999 retroactive date for $250,000 per year. XYZ has lost its contract with several hospitals and decides to dissolve the group, and the physicians are going their separate ways. Because claims can be made well after an adverse incident occurs, the XYZ physicians decide to cover their potential liability exposure with an extended reporting period endorsement (ERPE or more commonly known as “tail”).  An “unlimited” tail is offered from ACME for a one-time premium of $500,000. This will allow XYZ to report any claims that may arise in the future and have liability protection subject to the policy, limits, and deductible.  In addition to the offer from the incumbent carrier (Acme), XYZ contacts the medical malpractice insurance specialists at Diederich Healthcare and is provided with the following options:

Carrier Financial Rating Limits of Liability Deductible Reporting Period Premium
Acme Insurance Co “A” $3,000,000/$5,000,000 $10,000 Unlimited $500,000
ABC Physicians Insurance “A” $3,000,000/$5,000,000 $5,000 Unlimited $480,000
Doctors Casualty Company “A” $3,000,000/$5,000,000 $0 Unlimited $430,000
American ER Insurance Co “B+” $1,000,000/$3,000,000 $20,000 3 years $270,000
MPL Insurance RRG N/R $3,000,000/$5,000,000 $0 5 years $400,000

Note that the above carriers are fictional and all information is for illustrative purposes only.

In some cases, dissolving groups prefer to “split up” and each physician partner may need to (or want to) secure his/her own individual tail policy. Diederich Healthcare can accommodate this situation as well.  Sometimes, it is best for the individual doctor, who has a good history, to disassociate with those who have a problematic claims history that would inflate the premium for everyone. Or better yet, the individual doctor may align with those others in the group to use their collectively positive history to attain an even better rate and coverage terms. An experienced broker can help navigate your unique circumstances to ensure you receive the most favorable policy and the lowest rate possible.

Example:  Solo Physician Moving to a New State

Dr. Jones owns a surgical practice in Maryland and has a claims-made policy with Acme Insurance Company. Acme provides $1,000,000 per claim/$3,000,000 aggregate limits of liability with no deductible and a 1/1/2003 retroactive date for $30,000 per year. Dr. Jones has decided to move to California and open a practice in his hometown. Because claims can be made after an adverse incident occurs, Dr. Jones inquires with Acme about an extended reporting period endorsement (ERPE or more commonly known as “tail”) policy to cover his Maryland prior acts exposure back to 1/1/2003. An “unlimited tail” is offered from ACME for a one-time premium of $60,000. This will allow Dr. Jones to report any claims that may arise in the future and have liability protection subject to the policy, limits, and deductible. In addition to the offer from the incumbent carrier (Acme), Dr. Jones contacts the medical malpractice insurance specialists at Diederich Healthcare and is provided with the following options:

Carrier Financial Rating Limits of Liability Deductible Reporting Period Premium
Acme Insurance Co “A” $1,000,000/$3,000,000 $0 Unlimited $60,000
ABC Physicians Insurance “A” $1,000,000/$3,000,000 $0 Unlimited $51,000
Doctors Casualty Company “A” $1,000,000/$3,000,000 $0 5 years $42,000
Surgeons Insurance Co “B+” $1,000,000/$3,000,000 $0 1 year $33,000
MPL Insurance RRG N/R $1,000,000/$3,000,000 $0 3 years $39,000

Note that the above carriers are fictional and all information is for illustrative purposes only.

It is important to take a long-view approach when making changes to your professional liability insurance.  Diederich Healthcare has access to many carriers who provide coverage in multiple states.   Before you purchase tail coverage and start “first-year,” consider the option to keep your current retroactive date intact.  For example, you could spend $51,000 on tail: $5,000 in year 1, $10,000 in year 2, $15,000 in year 3, and $20,000 in years 4 and beyond, for a total of $101,000 over a 4-year period. Or you could keep your prior acts date (so you do not need tail) and keep paying $30,000 per year.

Example:  Independent Physician Joining Hospital

Dr. Smith has built a successful Obstetrics and Gynecology practice in Arizona and has a claims-made policy with Acme Insurance Company. Acme provides $1,000,000 per claim/$3,000,000 aggregate limits of liability with no deductible and a 7/1/1995 retroactive date for $53,000 per year. Dr. Smith has accepted a contract with her local hospital where she will be covered under the hospital’s professional liability insurance program. However, the hospital requires Dr. Smith to secure an extended reporting period endorsement (ERPE or more commonly known as “tail”) policy to cover her prior exposure while she was independent (the hospital’s insurance will not cover her private practice liabilities). An “unlimited tail” is offered from ACME for a one-time premium of $106,000. This will allow Dr. Smith to report any claims that may arise in the future and have liability protection subject to the policy, limits, and deductible. In addition to the offer from the incumbent carrier (Acme), Dr. Smith contacts the medical malpractice insurance specialists at Diederich Healthcare and is provided with the following options:

Carrier Financial Rating Limits of Liability Deductible Reporting Period Premium
Acme Insurance Co “A” $1,000,000/$3,000,000 $0 Unlimited $106,000
ABC Physicians Insurance “A” $1,000,000/$3,000,000 $0 Unlimited $98,000
Doctors Casualty Company “A” $1,000,000/$3,000,000 $10,000 Unlimited $93,000
OBGYN Insurance Co “B+” $1,000,000/$3,000,000 $10,000 3 year $65,000
MPL Insurance RRG N/R $1,000,000/$3,000,000 $0 5 years $77,000

Note that the above carriers are fictional and all information is for illustrative purposes only.

Example:  Physician Leaving Hospital Employment

The responsibility for “tailing out” a physician leaving a hospital depends on the contract. The hospital may be required to provide tail for the physician, in which case the hospital often buys tail from its current insurer. When the physician is responsible for his/her own tail, he/she may have the option to buy tail from the hospital’s insurance plan or shop the open market. In either case, Diederich Healthcare can assist by showing all the options available.

In this example, let’s say Dr. Patel is required by the contract to secure his own coverage for prior acts while he was working at ACME Hospital. Dr. Patel started with ACME on 7/1/2001. This is his retroactive date for his coverage. He is leaving the hospital effective 7/1/2014. ACME Hospital’s Risk Management Department provides a tail quote from their policy for $38,000. This will allow Dr. Patel to report any claims that may arise in the future and have liability protection subject to the policy, limits, and deductible. In addition to the ACME Hospital option, Dr. Patel contacts the medical malpractice insurance specialists at Diederich Healthcare and is provided with the following options:

Carrier Financial Rating Limits of Liability Deductible Reporting Period Premium
ACME Hospital Insurance “A-“ $1,000,000/$3,000,000 $0 Unlimited $38,000
ABC Physicians Insurance “A” $1,000,000/$3,000,000 $0 Unlimited $33,000
Doctors Casualty Company “A” $1,000,000/$3,000,000 $10,000 Unlimited $28,000
OBGYN Insurance Co “B+” $1,000,000/$3,000,000 $10,000 3 year $24,000
MPL Insurance RRG N/R $1,000,000/$3,000,000 $0 5 years $26,000

Note that the above carriers are fictional and all information is for illustrative purposes only.

As illustrated in the examples above, incumbent carriers often offer coverage at 200% of the expiring premium. In most cases, coverage is consistent with the current policy, and many doctors prefer the security of an unlimited reporting period. In addition to “apples to apples” unlimited tail options, Diederich Healthcare can help tailor a program to a specific risk level with a “limited tail” that has a shortened reporting period of between and 1 and 5 years. A “limited tail” can even further reduce the premium below that of an indefinite or “unlimited tail.” Taking a higher deductible and/or lower limit of liability can also drive down the cost of a tail policy. However, cutting back on coverage should be considered very carefully since underinsuring could expose loss of personal assets to the physicians or owners of the group. For quotes and advice on a range of personalized tail options, contact the tail experts at Diederich Healthcare.

What about free tail?

Many carriers will offer free tail coverage in the event of: (1) death, (2) disability, or (3) retirement from medical practice after meeting carrier requirements for age and length of time insured. If these free tail coverage conditions cannot be met, the help of an experienced medical malpractice insurance specialist can save you significant time and money.

For a custom tail insurance analysis, complete our no-obligation tail quote form or call 800-457-7790.

To contact the author, call 800-457-7790 and ask for Matt Thompson.

About Matt Thompson (view full bio page)

Matt Thompson is currently the Executive Vice-President & National Sales Manager serving physician-clients throughout the country. Matt joined Diederich Healthcare in 2007, bringing his experience and background in the field of law/compliance to the organization. In addition to consulting and providing malpractice insurance coverage to healthcare providers, Matt has also presented and spoken to Medical Societies/Associations, Hospitals, and Healthcare Groups about the ever-changing malpractice insurance landscape. Matt is originally from Central Illinois and he earned his Bachelor’s degree at Southern Illinois University. He further completed his Juris Doctorate of Law at the Southern Illinois University School of Law during which he worked at the Jackson County State’s Attorney office as a licensed 711 attorney. Matt and his wife Lacey are expecting their first child, Lillian, in early 2014.

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