Doctors should read their employment contracts carefully. The contract should specify if your employer is going to provide tail coverage when you leave the job. If they do not provide your tail coverage, you are responsible for your own liability protection. This piece summarizes Dr. Khan’s scenario and answers some common questions about tail insurance.
DR. KHAN’S SCENARIO:
When Dr. Khan finished residency, he went straight to work for a hospitalist group that provided his malpractice insurance while he worked there (2014-2018). After 4 years of working in Chicago with the hospitalist group, he accepted an offer in California. He was not aware that he was going to be responsible for his own tail insurance. The group’s insurance carrier offered an unlimited extended reporting endorsement (“ERE” aka “tail coverage”) at a price of $30,000.
Dr. Khan had never before purchased malpractice insurance and didn’t fully understand the concept of tail coverage. Fortunately, he found a solution that saved him more than $5,000 by working with MEDPLI. Still, paying nearly $25,000 was not a pleasant experience since he was not expecting the burdensome cost while planning a move across the country.
Remember to ask your future employer if they are paying for your tail when you leave or if they play “pin the tail on the doctor?”
WHAT IS “TAIL INSURANCE?”
“Tail insurance” is a common term for an Extended Reporting Period Endorsement, which allows the policyholder (physician) to report potential future claims that have not been made during the active claims-made policy period. Since most malpractice insurance policies are written on a claims-made form (rather than occurrence form), tail insurance is often necessary when a doctor changes jobs, because the claims-made policy will not be active once the policy lapses. If not for tail, a physician could face an uncovered loss, which could mean defense costs and possibly an indemnity payment for a malpractice case.
IS TAIL INSURANCE NECESSARY?
Though tail insurance may not be a legal requirement in your state, it’s strongly recommended for anyone who will not be renewing their claims-made policy. Most states allow a plaintiff to file a claim up to 2 years after an alleged malpractice event, in some cases longer. If a lawsuit is filed and you have no coverage, you will face the legal defense costs and any indemnity costs as ruled by the court.
HOW LONG DO I HAVE TO BUY MALPRACTICE TAIL?
Tail insurance should be secured no later than the last day the underlying claims-made policy is active. Doctors who are contemplating a job change should reach out to MEDPLI as soon as they are considering changing jobs, as it’s better to have more time to work on standalone tail quotes. Often, the incumbent carrier will offer a 30 day window after the policy lapses for a doctor to exercise the option to buy tail. However, it’s not a good plan to wait too long as you could jeopardize your ability to get a better option.
HOW LONG DOES TAIL COVERAGE LAST?
Most doctors opt for an indefinite tail, which places no time limit on the number of years the policy would respond to a claim. If an indefinite tail is too expensive to afford, some carriers offer limited tail options such 1, 2, 3, 5, 7, or 10 year tail. The shorter the term, the lower the premium, all else equal.
HOW MUCH DOES TAIL COVERAGE COST?
It really depends on the situation. As a general rule of thumb, you can expect the premium to be 200% of the premium for the underlying annual policy. This can range from 150%-350% depending on the circumstances. To get an estimate on what your tail insurance will cost, connect with a helpful malpractice insurance specialist at MEDPLI by calling 800-969-1339 or click https://medpli.com/get-a-quote/.
IS MALPRACTICE TAIL INSURANCE TAX DEDUCTIBLE?
Yes, malpractice insurance, including tail, is tax deductible. For independent contractors and practice owners, it is a business expense. For employed doctors, it would be considered a job-related expense that can be listed under itemized expenses on Schedule A of Form 1040. Please note that this is for informational purposes only. MEDPLI does not provide tax or legal advice.
WHAT ABOUT “NOSE COVERAGE?”
Nose Coverage is also called Prior Acts Coverage. If you can get nose coverage, you might not need tail coverage. Nose coverage is usually beneficial for a doctor who is simply changing carriers, not someone who is changing employment situations.
MEDPLI is proud to serve malpractice insurance solutions to doctors in the United States. If you have a question, please comment below or contact the author by emailing [email protected]