Medical Medical malpractice insurance isn’t just a requirement; it’s also a major practice expense. Selecting the terms of coverage is a complex, critical task, as is evaluating insurance carriers. In fact, the future of the practice and the reputation of the physicians may rest in the balance.
How much coverage do you need?
Every practice must address its malpractice coverage by asking: How much protection does it want, for what period and events?
All policies have limits of liability. This is the maximum amount an insurer will pay out for damages under the terms of the policy. The limits are generally offered on a per-claim (or per occurrence) and annual aggregate basis. For example, a policy may have $1 million per claim limit with a $3 million annual aggregate limit. This means the most the policy will pay for any one claim is $1 million, and the most the policy will pay in any one year for all claims reported by that physician is $3 million.
Most malpractice policies have a 12-month policy period. There are several types of coverage to choose from and it is important for one to understand the following terms.
There are generally two types of coverage offered (“Claims-Made” and “Occurrence”). “Claims-Made” policies cover a physician for incidents that occur after the retroactive date and reported to the insurer while the policy is in force. With this policy at the end of the term one will need to purchase tail coverage. Occurrence” policies cover a physician for incidents that occur while the policy is in effect, regardless of when the incident is reported to the insurer. In an occurrence coverage you usually pay a little more throughout the life of the policy; however, upon retirement or termination of the policy you do not pay for malpractice tail coverage.
Loss Run Reports are the reports that the underwriters have indicating the activity of each respective physician. It will show the number of reportable incidents, paid claims, reserves of possible payouts, legal expenses spent, and expert expenses. The historical Loss Run Reports are required by malpractice carrier underwriters when potentially reviewing the possibility of insuring a physician previously not insured by the carrier.
The Retroactive Date is usually the first date the physician purchased claims-made professional liability coverage. The Retroactive Date usually remains the same as the policy is renewed. Sometimes in place of buying Tail insurance, when switching malpractice carriers, one may have the insurance carrier pick up the prior coverage back to the Retroactive Date.
When a physician changes policies, it’s possible that some claims will be uncovered before the new policy kicks in. The gap can be filled by either “tail” coverage, which takes care of claims that arise after leaving the previous carrier, or “nose” coverage, which extends coverage of the new policy to an earlier date.
Which provisions must you scrutinize?
There are several policy provisions that physicians should review. Most doctors will want to include a “consent to settle” clause. It requires the carrier to obtain the physician’s written permission before settling a claim against him or her. Without it, the insurer can settle a claim that the physician believes is defensible.
Another provision is related to the legal costs of defending a claim. Those costs, which can be upwards of $100,000, may be included “inside” or “outside” the policy limits. The latter is better. Otherwise, a $100,000 legal defense bill will be subtracted from a $1 million per occurrence limit, leaving $900,000 to cover court awards and damages.
It’s also important to consider claim acknowledgment. An insurance carrier may acknowledge that a claim has been made in one of two ways:
1. It may require that the insured physician receive a “written demand for damages” from a prospective plaintiff, which means the physician must wait to actually be sued, or
2. The doctor him- or herself is allowed to report an adverse outcome as a potential claim, known as “incident reporting.”
Finally, every malpractice insurance policy excludes certain activities from its protection. So, make sure you check the exclusions provision to ensure it fits the kinds of practice activities you have in mind.
Which carrier should you use?
Malpractice insurance companies take many forms. Some are physician-owned; others are traditional commercial entities. Work with a broker or an independent agent to find the insurer that best suits your practice.
The carrier must have sufficient financial resources to satisfy all current and future damages claims against its policyholders. A close look at the carrier’s annual report and other financial statements will reveal information about its surplus, net written premiums and loss reserves — key metrics of financial strength. Also look at ratings issued by industry analysts such as A.M. Best Company and Fitch. A rating of “A-” or better is desirable.
Equally important is the carrier’s management philosophy, which is reflected in its underwriting standards, claims management and actuarial policies.
The cost will depend on the carrier as well as the coverage needed and the physician’s history of adverse events. To get more bang for your buck, take advantage of valuable preventive services that carriers offer to physician practices to help reduce their legal risk and maintain patient safety. For example, they may provide risk management tools through bulletins, publications and educational programs and even offer premium discounts for practices participating in the programs.
Work with the pros
Physicians need to carefully consider their malpractice insurance. If they don’t, they may face serious legal and financial implications from not having proper coverage when they need it. To ensure the well-being of your physicians and your practice, make sure you work with an insurance broker, your attorney, your CPA , and your Practice Management Consultant.
For more information contact Bill Clayton at [email protected].