[Editor's Note: This is part 2 of a guest post on medical malpractice. This is written by Dr. Sanghamitra Sadhu, with whom I have no financial relationship. Yesterday, Dr. Sadhu introduced the topic and discussed how to choose a company and get help in selecting your policy. In this second part, Dr. Sadhu discusses policy features to look for in your malpractice policy. Part 3 is now up as well, and can be found here.]
“Claims made” vs “Occurrence” Policies
Claims made versus occurrence versus convertible claims-made is probably the most important feature of the insurance and the choice depends both on cost and your individual circumstances.
Claims-made policy is the commonest type of policy available to physicians. It covers events that occur while the policy is active, starting with the “retroactive date”- the first day the policy goes into effect; AND are also reported while the policy is still active.
Occurence policies cover events that take place while the policy is active but may be reported even after the policy is no longer in-force. Because it is incredibly difficult to predict future claims costs in today’s medical malpractice environment—occurrence policies are rarely being offered by insurance companies these days. Berkshire-Hathaway-owned Medical Protective (MedPro) [WCI's insurer-ed] is among the few companies who still do. The price of an occurrence policy is generally much higher than a similar claims-made policy since essentially the price of the tail is factored in.
In my case, I obtained quotes for claims-made coverage from the 3 biggest (by volume) carriers in my state, which were all rated A or above: TDC, MedPro and MAGMutual. The two least expensive policies were within $1K of each other over 5 years. MedPro was almost $8K more expensive. Among these 3, only MedPro offers occurrence policies:
Five Year Premium Totals
- TDC $15.5K
- MAGMutual $16K
- MedPro (claims made) $23K
- MedPro (occurence) $34K
[Editor's Note: I am not sure what specialty this doc is in, but those sure look like one year totals to me, not five year totals! ]
Instead of going with the MedPro occurrence policy, if I went with the MAGMutual claims made policy and purchased a tail at the end of 5 yrs, it would cost me an additional $8K. This is still $10K less than the occurrence policy. Easy decision.
What was less easy was which to pick between TDC and MAGMutual. I chose the latter because I feel they have a bigger local presence and are more invested in my state. Hope I never have to find out!
A convertible claims made policy is the third and least common type of MPLI. As the name implies, you can convert your claims made policy into an occurrence policy without paying for tail coverage. Calvin Sullivan of CM&F grp, an insurance brokerage, here provides more information on this:
“All you need to do is purchase and maintain the convertible claims made policy for three years, remaining claims-free in that time, and upon renewal the fourth year your entire policy back through your retroactive date will convert to Occurrence, meaning you no longer have to worry about Tail Coverage if you decide to leave your policy.
In order to purchase a convertible claims made policy, you'll need proof of unbroken Professional Liability coverage back through your retroactive date, and you must have had your own individual limits of liability during that time. (Many group policies have shared limits.)”
Level of Coverage
Coverage is denoted by coverage limit per incident/annual aggregate limit. How much malpractice coverage is enough? This varies by state and specialty. States have minimum requirements for coverage. For example, Texas and Florida have lower than average minimum coverage requirements: TX: $200,000/$600,000 and FL: $250,000/$750,000 aggregate per year. On the other hand, New York is one of the states with a higher than average coverage requirement at $1.3M/$3.9 M. The most common MPLI coverage limit seen nationwide policy is $1M/$3M.
[Editor's Note: When coverage limits are displayed like that the first number is the amount of coverage per occurrence and the second number is the amount of total coverage.]
If you increase your coverage limits with the same carrier, you have new retroactive date when the increased coverage begins. So, if you get sued for an event that occurred before you increased coverage, the lower limits of liability will apply. On the other hand, if you reduce your limits of liability, your retroactive date reverts to the original date your policy took effect and your coverage will be covered by the lower limits regardless of when the event occurred.
Find out what kind of losses you are covered for- “pure losses” cover you only for amount due to plaintiff if you lose a case or have to settle. “Ultimate net losses” also cover you for defense costs, in addition to indemnity payment.
In this American College of Physicians article, Patrick Malloy gives some more practical advice:
“Know the extent of the insurer’s obligation to defend you. Will you be reimbursed for lost wages when in court? What services will be provided for you as part of your defense? How soon must you report a liability claim to the carrier in order to still be eligible for full coverage?”
When more than one claim arises from a group of related incidents, many carriers will consider them to be “related” claims and will cover only the amount covered by single-incident coverage limit (eg., $1M in a $1M/3M policy).
This article in Medical Economics [no longer available online — ed] notes what happens if the claims reach the coverage limit? In most circumstances, the insurer simply tenders the defense of the claim back to the insured. This means that it is now the insured’s responsibility to hire attorneys to defend the claim. Some policies do provide that the insurer will continue to provide a defense even after coverage limit is reached.
Please note that Umbrella Insurance does NOT cover medical malpractice.
Assessable or Non-assessable
Most policies are non-assessable, implying that in case the insurance company runs a loss, they cannot impose an assessment (levy extra payment) on policyholders. For example, an insurer in FL, FMMJUA, issues policies that are assessable. This carrier covers doctors with issues of insurability and they cannot deny coverage to anyone. Naturally, their premiums are 15-20% higher than comparable policies in the standard market. Of note, they have never issued an assessment but instead have returned dividends to policyholders since they are a “participating” carrier.
Nose and Tail Coverage
The next most important step to consider between policies you are comparing is to assess the Extended Reporting (“Tail”) Endorsements & Prior Acts (“Nose”) Coverage. Since a claims-made policy covers you only for events that both occur and are reported to the carrier while the policy is in effect, if you need/want to change coverage to a different insurer, you are not covered and therefore need to purchase coverage for events that occurred while the policy was in force but may be reported in the future.
If such coverage is purchased from your current/former carrier at the time you change to your new carrier, it is called “tail” coverage.If this coverage is purchased from your new malpractice carrier, it is referred to as “nose” or prior acts coverage.
Tail policies generally cover an unlimited duration and have the same limits of coverage as your policy with the insurer, unless you choose to carry lower limits of liability on your tail policy. Say, you had a $1M/3M policy and purchased a tail with the same coverage and then got sued for $1M- you have no more coverage on your tail policy for any more events. Some carriers will refresh that limit ONCE per policy. So, in the above example, the insured is protected for another $1M claim but no more.
Tail policies generally cost about 1.5-2.5 times your annual premium. It is usually less expensive to buy prior acts coverage from your new carrier than tail from your former carrier.
State laws generally allow physicians about 30-60 days to purchase tail coverage. Most of the time, you have to pay the entire cost of the tail policy upfront (which can be a lot of money to cough up at one time), though there are some insurers, such as TDC, that offer financing. Please be careful to make all payments on time, otherwise, your tail policy may be canceled without refund.
Hence, when comparing prices between two equivalent claims made policies, it is important to include the price of tail coverage, especially in the current environment of greater mobility and higher turn-over. That is, unless you have negotiated “tail” be covered either by the practice you are joining as part of signing bonus or by your former practice who may want their business assets to be well-protected in case you are sued. This is usually accompanied by a restrictive covenant requiring you to practice outside of the area covered by your former practice.
This increased demand for tail policies has generated the development of “stand alone” tails. These are offered by companies willing to beat the prices that you have been quoted by your current insurer for the same coverage limits. may further reduce cost by offering the option of deductibles or limited-term tails- covering only a few years, such as a one-year or five-year tail.
Free tail coverage is often provided by carriers as a courtesy to physicians who have been insured by the same company over several years. The retirement age at which this is offered depends on how long you have continuously been insured by the carrier- >55 yrs at retirement if insured for at least 5 yrs and <55 yrs if insured for 10-15 yrs by the carrier- important for our FI-RE colleagues! Free tail coverage is also available in case of death or disability of the insured.
Consent to Settle Clause
Look for this in your policy. The insurance company’s interests are not always aligned with yours. Even if you think you are “right” and the case very is defensible, the insurance company may want to cut their costs and settle. The consent to settle clause in your policy ensures that the carrier needs your written permission before they can settle.
Some carriers may offer a waiver of this clause for a reduction in rate. For e.g., one carrier website stated a 5% reduction in annual premium with this waiver. Even with this significant saving, it is not wise foregoing this clause because every claim settled stays on your record, reducing your insurability in the future.
Defense Costs “Inside” or “Outside” Policy Limits
When a claim is being contested, the defense costs may either be part of your total liability limits or “outside” of these limits. For example, say you have a $1,000,000 (per occurrence)/$3,000,000 (yearly aggregate) policy and the defense costs for a claim is $200,000. A policy with defense costs “outside” of the limits of liability will have $1,000,000 to go towards paying the claim, whereas, if the defense costs are “inside” the policy limits, only $800,000 is left to cover the claim. Hence, a policy with defense costs “outside” of policy limits is preferable.
In Part 3 we'll discuss discounts available and some the effects of tort law reforms. In the meantime, what do you think? Do you have an occurrence or claims-made policy? Who's paying for the tail? Would you buy a policy without a consent to settle clause? Why or why not? Comment below!