By Joe Dyton, WCI Contributor
Potential malpractice lawsuits are an unfortunate part of being a physician. Fortunately, there are insurance policies in place that can help protect physicians’ practices and their financial assets in the event they have to face such a suit. In fact, physicians have a couple of malpractice insurance options they can choose from to avoid paying for these suits out of pocket—claims-made and occurrence.
While both policy types do the same thing—offer a financial backstop when malpractice lawsuits occur—they function differently and offer different benefits.
Since medical malpractice is part of being a doctor and since most doctors will, on average, be sued once during their career, you need to protect yourself from it with good insurance and a reasonable asset protection plan. Keep reading to learn more about claims-made malpractice and occurrence insurance policies, how they differ, and which option might work best for your potential needs.
What Is Claims-Made Malpractice Insurance?
Claims-made malpractice insurance is an insurance policy that provides coverage for incidents that happened and were reported while the policy was active. In other words, the incident and the claim filing have to take place while the policy is in effect. If everything lines up, the inception, or retroactive date, becomes a permanent part of the claims-made policy.
Since this type of policy must be in force when the incident in question occurred, the coverage has to extend for a fair amount of time, as a significant amount of time could pass between the event and the actual claim being made. Oftentimes, some claims-made policies are written with a period of coverage known as a “tail,” which will lengthen coverage for a given set of time after the initial policy expires. “Tail” coverage can be purchased later if it’s not offered as part of the original policy.
Claims-Made Malpractice Limits
Claims-made malpractice insurance policies have limits, just like any other insurance policy. Most policies offer coverage limits between $100,000-$300,000 and $1 million-$3 million, according to the National Library of Medicine. The first figure is the maximum an insurer will pay per claim during the policy period, which is usually one year. The second amount is the maximum an insurance company will pay for all of the claims during that same policy period.
So, if a physician made a claim and they had $250,000 in coverage at their disposal per claim, that’s how much their policy would pay for that single claim. If that same physician has to file multiple claims on that policy, however, they’d be eligible for up to $250,000 for that other one as well.
If a physician’s claim totals exceed their maximum coverage over the course of a policy period, they might have to look into gap coverage. For example, if a physician’s policy offered up to $2.5 million per policy period but they have multiple claims that add up to $3.5 million in losses, it’s technically up to them to make up the difference. However, in reality few physicians ever personally pay an amount above policy limits.
When a Claims-Made Policy Pays
Once a claims-made malpractice insurance claim is made (while the policy is in force), coverage starts. The insurer will defend the policyholder and pay for the claims made. The policy will specify the period when coverage applies; the policy will cover any claims (whether settlements or judgments) that are made within that time frame.
What Does a Claims-Made Malpractice Insurance Policy Cover?
Malpractice insurance policies pay damages that the patient, or plaintiff, suffered. The amount paid (settlement) is an indemnity payment, which is available up to the policy’s liability limits. Claims-made policies also cover the insured’s legal defense, which is critical as defending a malpractice claim could cost tens or hundreds of thousands of dollars, regardless of guilt. Note that they do not cover lots of legal problems that are not malpractice. Examples include criminal activities, fraud, EMTALA fines, or HIPAA violations.
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What Is Occurrence Malpractice Insurance?
Occurrence malpractice insurance is coverage for incidents that happened during the policy year, regardless of when the claim is reported to the carrier. These policies provide coverage for claims that happened while the policy is active. Even if the policy has since expired or been canceled, if the incident happened while the policy was in force, it’s deemed a coverable event.
For example, if an occurrence 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. An occurrence policy can be helpful as some health issues can take years to show up and the policy will be there as another layer of protection.
Occurrence Malpractice Limits
Occurrence malpractice insurance policies have two types of coverage limits. The first is a per-occurrence limit, which is the total sum an insurer will pay for a single claim. The second is an aggregate limit, which is the total amount the insurance company will pay for a period of time.
A $1 million per occurrence limit with a $3 million aggregate annual coverage limit, for example, 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.
When an Occurrence Policy Pays on Claims
An occurrence malpractice insurance policy will pay physicians for losses that happened within the policy period—even if that policy is no longer in force when the claim is submitted. Since occurrence policies cover incidents that happened during the policy’s lifetime, physicians could be in a situation where they have to file a claim years after they saw the patient who is filing suit.
That’s the trade-off with an occurrence insurance policy—yes, it offers extended coverage, but you never know when you might have to file a claim. With a claims-made policy, you know your coverage only applies to cases that happened within a certain timeframe.
Occurrence vs. Claims-Made Malpractice: What Is the Difference?
Coverage time is the key difference between claims-made malpractice and occurrence insurance. Remember, occurrence malpractice insurance covers incidents that occurred during a given policy’s activation. When the claim is filed is irrelevant. Meanwhile, claims-made malpractice insurance provides coverage for incidents that occur when the policy is in force and when the claim is filed. With a claims-made policy, the insurer won’t pay out a claim if it’s filed after the policy has expired or was canceled.
Coverage limits also differ between occurrence and claims-made malpractice insurance policies. An occurrence policy’s aggregate limit resets annually. If a physician buys a $1 million policy and gets sued for that amount, they’d receive another $1 million of coverage the following year.
Meanwhile, claims-made policies do not reset—the coverage purchased has to last the life of the policy. If a physician with $1 million worth of coverage on a claims-made policy was sued for that amount, they’d have to increase their policy limit or risk being uninsured.
Should Physicians Have Claims-Made or Occurrence Malpractice Insurance?
A physician’s decision between claims-made or occurrence malpractice insurance comes down to the coverage that best serves their circumstances, present and future. After all, both provide the coverage a physician requires, and they both have their advantages.
Claims-made policies are typically more flexible, as a policy in a given year covers incidents within that time frame only. Thus, they need some sort of coverage when they leave the employer offering that claims-made policy. This can be “tail” coverage, if provided by the prior insurer, or “nose” coverage, if provided by the next insurer. Note that tail policies can be surprisingly expensive, often two to three times the annual premium.
On the other hand, occurrence policies offer more permanent coverage. A physician with a claims-made malpractice insurance policy does not have to worry about past incidents once a new year begins, but an occurrence policy gives a physician peace of mind that their malpractice insurance will always be there for them. As long as the incident in question took place while the occurrence policy was in force, the physician’s insurer could cover the claim. Meanwhile, a doctor with claims-made coverage could find themselves without adequate protection depending on when they have to file a claim.
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Is an Occurrence or Claims-Made Policy More Affordable?
Factors such as location, the types of procedures provided, the specialty, and the prior claims history factor into malpractice insurance costs, regardless of the policy type. However, claims-made policies are usually less expensive than occurrence malpractice policies at the beginning. The claims-made policy rates can increase over time as the policy matures, though. Plus, since claims-made policies could potentially leave physicians without enough coverage at a given time, it’s recommended they purchase tail coverage, which is an additional cost—approximately 200% of the expiring claims-made premium, according to MEDPLI. However, it's possible that, even with the cost of tail coverage, you may still come out ahead with a claims-made policy.
Meanwhile, occurrence policies cost more than claims-made initially, but the rate does not change much, if at all. Additionally, there’s no need for tail coverage since the initial occurrence coverage essentially remains in place even after the policy expires.
Whether occurrence or claims-made malpractice insurance is the better choice comes down to fit and what your needs are. Whichever policy type you choose, be sure to work with an independent agent who can help you find the best options currently available to you. Independent brokers can bring you quotes from different carriers to help ensure you’re getting the best price possible.
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