Claims-made policies vastly outnumber claims-paid policies for physician medical malpractice insurance in the United States. Still, many doctors who are currently insured on a claims-paid policy form do not even know there is a difference. This post intends to clarify some key differences in claims-made and claims-paid malpractice insurance policies. Physicians should pay attention to details like this, when choosing malpractice insurance protection.
According to the International Risk Management Institute, Inc. (IRMI), a claims-paid policy can put a physician in an unfavorable position. Medical malpractice claims can remain open for years. If you are a doctor insured by a claims-paid policy, and you have an open case, you must remain insured with your same carrier as long as the claim is open, or face paying for the claim out of personal assets. This means you would have to continue to pay premiums (or assessments) until the case closed, even if you wanted to switch carriers. Being insured on a claims-paid policy limits your ability to change carriers or potentially even jobs, without incurring additional costs.
CLAIMS-PAID POLICY DEFINED BY IRMI:
“A liability insurance policy that is triggered at the time a claim is paid, rather than at the time a claim is first reported (claims-made policy) or at the time the injury or damage occurs (occurrence policy). This approach can offer significant benefits in terms of pricing accuracy. However, since claims will be paid only while the policy remains active, the insured facing a claim cannot cancel the policy while the claim is pending, often for years, unless he or she is willing to pay the claim out of personal assets.”
The difference in claims-made and claims-paid form of medical malpractice insurance is significant for doctors. Because the coverage of claims-paid policy is triggered when the claim is made, a doctor could be stuck paying for malpractice coverage for years after a claim has been made.
CLAIMS-MADE POLICY DEFINED BY IRMI:
“A policy providing coverage that is triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act that gave rise to the claim took place. (The one exception is when a retroactive date is applicable to a claims-made policy. In such instances, the wrongful act that gave rise to the claim must have taken place on or after the retroactive date.) Most professional, errors and omissions (E&O), directors and officers (D&O), and employment practices liability insurance (EPLI) is written as claims-made policies. “
The difference is significant: claims-made policies are better for physicians than claims-paid policies. Claims-paid policies are good for the carrier, because the carrier has more control. One of the largest writers of claims-paid policies for physicians also has a crafty way of keeping doctors insured with them: not allowing them to cancel at just anytime. In order to get out of the program, doctors have to opt-out by October 31, 2019. Otherwise, they will be obligated to pay their 2020 assessment.
CLAIMS-PAID POLICIES LIMIT FLEXIBILITY
For example, Dr. Smith is insured by a claims-paid medical malpractice insurance policy effective 12/31/2018-12/31/2019. He wants to change carriers in 2020. He must notify his current carrier (the one issuing the claims-paid policy) by October 31, 2019, that he will be opting out for the next calendar year. If he misses the “October 31 opt-out deadline,” his carrier will automatically charge him the next year’s assessment. Worse yet, if Dr. Smith has a claim, he will be stuck with the same situation until after his claim is paid.
CLAIMS-PAID POLICIES COST MORE IN THE LONG RUN
Another example – Dr. Chen. Dr. Chen has been insured by a claims-paid medical malpractice insurance policy since he started his private practice in 2012. He was named in a malpractice lawsuit in 2015. He took a job in 2016 with a new employer to provide his malpractice insurance. However, he has maintained his coverage for 4 years after closing his private practice. He had to pay an additional 4 years of malpractice coverage expense because his policy would not cover the claim if his policy ceased to remain in force. In contrast, if he had been insured on a claims-made policy, he could have reported the claim in 2016, then stopped paying additional premiums when he became insured by his employer’s policy.
With standard claims-made medical malpractice insurance policies, most admitted carriers allow you to cancel anytime and get a pro-rated refund (though some will charge a short-rate penalty). This accommodates savvy physicians who expect the best coverage at the most affordable rate. When things change, your malpractice coverage should be flexible.
MEDPLI recommends claims-made or occurrence coverage over claims-paid coverage for physicians from California to New York and everywhere in between. To get started with quotes for your unique situation, click here or call us at 800-969-1339.