Medical malpractice insurance can be confusing, even for the most highly educated. Doctors who are buying malpractice for the first time have many questions. What is claims-made? What is occurrence? What’s my retroactive date? Do I get a discount for working less than 20 hours per week? What does $1,000,000/$3,000,000 limits mean? Who are the major malpractice insurance carriers? How do I get the best rate for the coverage I need? How long does it take to get a malpractice insurance quote? How much is tail coverage? Do all specialties have the same rate?
This post will equip doctors with answers to some of the most frequently asked questions they face when buying Medical Professional Liability Insurance (MEDPLI). Medical Malpractice Insurance is another term for Medical Professional Liability Insurance.
ENLIST A BROKER OR GO DIRECT?
When doctors shop for malpractice insurance, they will get the best results by using a broker who specializes in Medical Professional Liability Insurance (MEDPLI). This is because a talented broker will understand your specific needs, and help you get quotes from multiple medical malpractice insurance companies. You will save time, money, and generally get the best service when you use a broker who specializes in medical malpractice insurance for private practice physicians.
Going direct takes more time, and will not give you a clear view of your options. Going direct to 5 companies would mean 5 points of contact, and who has time to fill out 5 applications? With a broker, you fill out just one application and then get multiple quotes, as well as objective advice about individual carriers.
The most successful physician practices choose a broker that helps them ensure they get the best deal on their professional liability insurance program year after year. A broker makes life easier for physicians and practice managers.
CLAIMS-MADE VS. OCCURRENCE
One common cause for confusion is “What is claims-made and what is occurrence?” Claims-made is the most common form of malpractice insurance policy. Claims-made policies start with a Retroactive Date and end with Tail. Occurrence, in contrast, has no retroactive date, and requires no tail.
Claims-Made Malpractice Insurance
Claims-made insurance is widely available from many medical malpractice insurance carriers including MedPro, The Doctors Company, ProAssurance, CNA, Coverys, NORCAL, Aspen, MAG Mutual, MLMIC, ISMIE, and more. Due to marketplace competition, there are more good options to choose from with claims-made insurance than with occurrence. With claims-made malpractice insurance, you should know your retroactive date. Plan your finances in preparation of buying tail coverage when you cancel the policy. Most carriers offer free tail for death, disability, and retirement.
Under a claims-made insurance policy, coverage is triggered when a claim is made against the insured. For example, if a claim is made in 2019 based on treatment rendered in 2015, the 2019 policy responds to the claim. Hence the term “claims-made.” A claims-made policy covers events that occur during the policy period (starting with the retroactive date), and are reported while the policy is still in force. Once the policy is no longer in force, tail coverage must be obtained.
Occurrence Malpractice Insurance
With an occurrence policy, coverage is triggered based on when the incident occurred, hence the term “occurrence.” If a claim is made in 2019 based on treatment rendered in 2015 (when the incident occurred), the occurrence policy that was in force in 2015 responds, not the 2019 policy (in contrast with claims-made).
The Occurrence form of malpractice coverage is now limited to just a few options, with Medical Protective being the main provider of occurrence form malpractice insurance for US physicians. The Medical Protective Company (MedPro) is one of the oldest and largest providers of malpractice insurance. MedPro is the main option for doctors who want occurrence coverage.
Before the 1970s, occurrence form was standard for medical liability insurance. However, when malpractice claims began increasing, insurers had a difficult time matching price to risk. With such an increase in malpractice claim frequency and severity experienced in the US in the 1970s, costs to defend claims increased and payouts skyrocketed. Thus premium rates increased. Claims-made became a better option because the rates could be adjusted year to year to account for changes, allowing for a more accurate matching of price to risk, which fluctuates with the litigation climate.
Beware the Claims-paid policy form
Besides the claims-made and occurrence policy form, some doctors are insured by a claims-paid policy form, which restricts coverage and flexibility. In California, many doctors are insured by a Trust on the claims-paid policy form without even realizing there is a difference. The claims-paid form of malpractice insurance can create problems for doctors. If you have a claim under a claims-paid policy, you are essentially “stuck” with the carrier until the claim is actually paid out. Claims-paid policies are inferior to claims-made and occurrence policies.
Your retroactive date is a very important aspect of your medical professional liability insurance, if you have a claim-made policy. Let’s say your retroactive date is 7/1/2005. Any incidents that occurred before this date will not be covered by your policy. Your retroactive date, also called prior acts date, is the beginning of the coverage period.
Your retroactive date will remain the same as long as you maintain claims-made coverage, even if you switch companies. Insurance carriers will cover your prior acts by keeping your retroactive date the same as it was with your former insurance carrier. This allows doctors to take advantage of better pricing without having to buy tail every time they change.
Retroactive Date Example
For example, Dr. Smith started his first claims-made policy effective 7/1/2005, with MedPro. He changed to The Doctors Company in 2008, but his retroactive date is still 7/1/2005. Dr. Smith changed to ProAssurance in 2012 but his retroactive date is still 7/1/2005. He changed to NORCAL in 2018, and again kept his retroactive date 7/1/2005 by purchasing prior acts. As long as he maintains active malpractice coverage, his retroactive date will remain intact.
Pop Quiz from the example above!: It’s now 2019 and Dr. Smith just received notice that a patient he treated in 2009 is suing him. Which carrier will respond to the claim? MedPro, The Doctors Company, ProAssurance, or NORCAL? The correct answer is NORCAL, because claims-made insurance responds to claims based on when the claim is made. If a claim was made against Dr. Smith for treatment he rendered before his 7/1/05 retroactive date, he would not be covered by this policy.
Back in the days of doctors keeping one job their whole career, you might never change your retroactive date as long you practiced. These days, doctors change jobs more frequently and some have multiple jobs simultaneously. This can create confusion when it’s time to buy malpractice tail coverage. You should consult with a medical professional liability insurance specialist if you have any questions about your prior acts period, or need help purchasing tail insurance. MEDPLI helps doctors understand their retroactive date.
MEDICAL MALPRACTICE TAIL COVERAGE
Medical Malpractice Tail coverage prevents a gap in coverage when a doctor’s claims-made policy ends. A fancy term for tail is “extended reporting endorsement (ERE).” If you have ever had to buy tail, you probably recall it was expensive. Malpractice tail generally costs 200% of the premium of the underlying policy. For example, an Illinois Radiologist whose annual claims-made insurance rate is $20,000 can expect the tail to cost around $40,000.
Tail for doctors changing jobs
Most doctors first experience the burden of buying malpractice tail coverage when they change jobs. Many physicians who are employed by a group do not have to provide their own malpractice insurance while they are employed. However, when they change employment, doctors are usually responsible for paying for their own tail. The carrier providing the group coverage will offer the Extended Reporting Endorsement. For many years, there was no option besides paying the tail or going bare. MEDPLI is proud to offer competitive standalone tail policies, so you do have options. By shopping the market for standalone tail, MEDPLI clients often save around 20% for the same unlimited ERP.
Do I need tail to switch carriers?
When you change carriers, it is very important to understand your retroactive date. You need to ensure the new company will pick up your prior acts, going back to your retroactive date. Otherwise, you will need tail.
Most companies will provide free tail to physicians upon death, disability, or retirement.
LIMITS OF LIABILITY
Your limits of liability (aka “policy limits”) refer to the amounts the insurance carrier will pay on your behalf in the event of a claim. In many states, the standard limits of liability are expressed as “$1,000,000/$3,000,000.” The first number (before the “/”) represents the Per Claim limit. In this example, your insurance carrier would pay up to $1,000,000 per claim on your behalf for a covered loss. The second number is the aggregate limit. With $1,000,000/$3,000,000 limits, your insurance carrier would pay no more than $3,000,000 for all claims within a policy period.
A few examples of $1,000,000/$3,000,000 limits:
Dr. Smith had 3 claims that settled for $500,000, $1,200,000, and $800,000 in one policy period. All are covered losses, but the insurance carrier will not pay beyond $1,000,000 per claim, so the insured doctor must pay $200,000 out of pocket for the largest claim. The total aggregate of the claims is $2.5 Million, so the aggregate limit has not been exceeded.
Dr. Jones had 4 claims that settled for $500,000, $900,000, $1,000,000, and $1,000,000. The 4th claim pushed the aggregate payout to $3,400,000, so the insurance carrier is not going to pay the $400,000 that is beyond the aggregate limit.
Dr. Patel had 9 lawsuits in one year and each settled for $100,000. Dr. Patel’s insurance carrier paid for all $900,000 in losses, as he did not exceed any limits.
Side note – Each of these examples are concerning for patient safety, as well as the affordability of future malpractice premiums for these physicians. Multiple large payout claims in one year is a rare occurrence. Drs. Smith, Jones, and Patel could all benefit from patient safety and risk management training.
Not all limits are $1,000,000/$3,000,000
Not all doctors carry $1,000,000/$3,000,000 limits of professional liability coverage. Most Florida doctors carry $250,000/$750,000 limits. In Texas, a large number of physicians have $200,000/$600,000 limits. Most New York doctors carry $1,300,000/$3,900,00 limits of liability for malpractice insurance. You should check with a malpractice insurance specialist about which limit level is available, and what most hospitals in your area require for hospital privileges.
Some states have provisions that split the limits between private insurance and a state run fund, such as the New Mexico Patient Compensation Fund, Kansas Healthcare Stabilization Fund, Indiana Patient Compensation Fund, Pennsylvania’s MCARE Fund, Louisiana Patient Compensation Fund, Nebraska Patient Compensation Fund, Wisconsin Patient Compensation Fund, South Carolina Patient Compensation Fund, and New York Excess Coverage Fund.
Selecting Your Policy Limits
It’s important to select policy limits you are comfortable with, and you should consider any state requirements or requirements that hospitals will require you to carry. If you feel that your limits are inadequate, you can inquire about excess limits.
DEFENSE COSTS: WITHIN OR IN ADDITION TO THE LIMITS?
Most malpractice insurance policies provide defense costs in addition to the limits of liability. “Defense in addition” is superior to “defense within.” “Defense within” means legal costs erode the amount of coverage available to pay indemnity.
If you have a policy with defense costs within the limits, its more likely that you will face out of pocket costs. For example, let’s say your patient sues you, and the judgement orders an indemnity payment of $1,000,000 on your behalf. Your defense costs (attorney fees, expert witnesses, and other loss adjustment costs) might be $150,000. If you have $1,000,000/$3,000,000 limits with defense costs in addition to the limits, your insurance carrier covers the legal fees. If your defense costs are only included within your limits of liability, you face $150,000 in legal costs out of pocket.
Look for the provision about defense costs in your policy and ask your broker if you need help distinguishing. All else equal, a malpractice insurance policy with defense costs in addition to the limits of liability is best.
CLAIMS TRIGGER: INCIDENT SENSITIVE OR WRITTEN DEMAND?
Incident Sensitive and Written Demand are two different types of “claims triggers.” The claims trigger is important in determining whether or not an event is recognized as a claim by the insurance carrier. Written demand means that an incident (such as a bad patient outcome) is not reportable as a claim until there has a been a written demand for damages, such as notice of intent to sue.
In contrast, an incident sensitive claim trigger in a malpractice insurance policy allows a doctor to report an incident that might later become a claim. An incident sensitive claim trigger is preferable to a written demand trigger because it gives the physician greater flexibility in reporting claims and changing carriers without jeopardizing their malpractice coverage.
CONSENT TO SETTLE
As a doctor, your professional reputation is invaluable. How would you feel if you did nothing wrong, but a lawsuit was settled with a liability payment on your behalf that is reported to the National Practitioner Data Bank? This scenario is more likely to occur when the doctor’s consent is not required for an insurance carrier to settle a claim.
If your policy requires your written consent to settle a claim, you keep more control. With a good consent to settle clause, the carrier cannot settle a claim without your written consent.
Beware some policies contain a “hammer clause.” A “hammer clause” could require you (the insured physician) to pay out of pocket if you are ordered to pay more than the amount your carrier recommended you to settle for.
Most admitted insurance carriers will offer a policy that requires the insured’s consent without a hammer clause. This is a preferred coverage feature. Doctors who are buying liability insurance should be sure to understand whether their consent is required to settle a claim.
Be mindful of exclusions in your policy. Most malpractice insurance policies exclude coverage for reckless or intentional conduct, illegal acts, and misrepresentation on the application. Other times, coverage will be excluded for a risk that is outside of the scope of the coverage you need.
If you are working at multiple locations, you might have multiple policies. For example, Dr. Smith works as a hospitalist at ABC Hospital, where he is covered by the hospital’s policy. He also sees patients at his own clinic three days per week, and has his own policy for the private practice aspect. Dr. Smith’s malpractice policy would likely exclude coverage for any claims arising out of the scope of his hospitalist work, since it would be covered by the employer’s policy for his work as a hospitalist. Read the exclusions section carefully in your policy.
Medical malpractice insurance premiums are quoted in annual terms – a standard policy lasts 12 months. Some carriers require payment in full to make coverage effective. Others, usually admitted carriers, will offer payment terms such as monthly or quarterly.
Some carriers will offer a small discount for payment in full or for automatic recurring payments. MEDPLI can help you identify a malpractice insurance option that will accommodate your preferred payment terms.
Surplus Lines carriers typically require payment in full, especially for a standalone tail policy. If you are buying standalone tail, you are most likely getting a better deal on the premium than what is offered by your employer’s carrier. In exchange for a lower overall price for tail coverage, you will generally have to pay the premium in full.
Missed payments are a leading cause for canceled malpractice insurance policies. MEDPLI recommends setting up your policy on automatic payments if it makes sense to the physician paying the premium. It’s convenient to know the premium is paid, instead of worrying if your check made it in the mail on time.
TYPES OF MALPRACTICE INSURANCE CARRIERS
1. Admitted Carriers. Admitted Carriers are the preferred type of carrier for most physicians seeking state-standard malpractice insurance. Before offering medical malpractice insurance, admitted carriers must be licensed by your state department of insurance. Choosing an admitted carrier provides added security of being a participant in the State Guaranty Fund. Some of the top admitted malpractice insurance carriers include Medical Protective, The Doctors Company, ProAssurance, Coverys, and NORCAL. Admitted carriers fall into two sub-categories: Stock Insurance Company or a Mutual Insurance Company.
2. Excess and Surplus Lines (E&S). E&S Carriers are not admitted, meaning they do not have the same requirements to follow “admitted” standards in each state. E&S Carriers do not participate in the State Guaranty Fund. However, they still must be approved by the state department of insurance to offer medical malpractice insurance to physicians. E&S carriers play a critical role in insuring higher-risk healthcare groups such as hospitals, telemedicine groups, and physicians whose practice profile does not fit well with admitted carriers. Doctors with too many claims to qualify for admitted coverage often buy malpractice insurance from an E&S Carrier. CNA is one the largest Excess and Surplus Lines insures of medical professional liability insurance in the United States. Some of the major admitted carriers also have a separate “sister” E&S Carrier that can accommodate large, complex professional liability risks, such as hospitals and multi-state physician groups.
3. Risk Retention Groups (RRGs). Risk Retention Groups (RRGs) are liability companies owned by its policyholder members, similar to mutual insurance companies in that aspect. RRGs are subject to less scrutiny than admitted carriers, so they are often able to be more flexible in underwriting. That can be a good thing, or a bad thing. Properly managed RRGs can provide policyholders with a customized liability protection to meet their unique needs. However, mismanaged and poorly funded RRGs exist in the malpractice insurance landscape. Doctors need to be aware of the financial stability of any RRG they are considering joining. The Nevada Commissioner of Insurance placed Lancet Indemnity RRG into Receivership due to its hazardous financial condition, and inability to pay claims. An example of a successful RRG is MCIC Vermont Reciprocal RRG, which is one the largest malpractice insurance RRGs in the United States. When considering coverage with a Risk Retention Group, pay close attention to the company financials, and whether the RRG can assess its policyholders. Look for an AM Best rating of “A (Excellent).”
4. Joint Underwriting Associations. Joint Underwriting Associations (JUAs), such as the Texas Medical Liability Insurance Underwriting Association, are state-run insurance programs. JUAs provide liability protection for doctors who have difficulty obtaining coverage from admitted carriers. Generally, JUA policies cost more and provide less comprehensive coverage than admitted carriers. JUAs are not the premier option for a doctor who can obtain coverage in the private insurance marketplace.
5. Captives. Captives are a form of self-insurance. Large healthcare organizations, such as hospital systems, create Captive Insurance Companies. Individual physicians and small groups can disregard Captives as a viable choice for their malpractice insurance.
6. Trusts. Trusts, such as the Cooperative American Physicians Mutual Protection Trust in California, are an alternative to traditional insurance carriers. When considering coverage through a Trust, you should pay attention to Claims-Paid form of coverage, and whether you have the ability to switch coverage at anytime. Claims-paid is more restrictive than claims-made form policies.
STATE GUARANTY FUNDS
The purpose of the state guaranty fund is to protect the policyholder in the event of an admitted carrier’s insolvency, meaning an inability to pay its claims. All 50 states and Washington DC administer a state guaranty fund.
In February of 2019, The Texas Department of Insurance placed Capson Physicians Insurance Company into receivership. The Texas Department of Insurance took actions when the company’s surplus fell below the minimum required to operate in Texas and other states. The guaranty fund provides a safety net to admitted carrier policyholders when their carrier cannot pay claims. No such safety net exists for non-admitted carrier policyholders.
Only licensed insures, also called “admitted carriers,” must comply with state guaranty laws. State guaranty laws do no apply to unlicensed insurers – such as Surplus Lines Carriers, Risk Retention Groups, and Reinsureres.
For these reasons, admitted carriers are preferable when they can accommodate your healthcare risk.
MALPRACTICE INSURANCE FOR YOUR SPECIALTY
Every medical specialty is unique. Malpractice insurance rates vary by specialty. MEDPLI specializes in medical malpractice insurance for physicians of the followings specialties: