Medical Malpractice Insurance
to Choose Medical Malpractice Insurance
malpractice insurance falls into three categories: claims-made,
occurrence and claims-paid coverage. The most common type of policy
is claims-made coverage.
policies cover policyholders for alleged acts of malpractice that
take place and are reported to the carrier during the policy period.
Claims-made policy premiums are relatively low for the first few
years due to the fact that there is often a significant lag between
when a treatment is administered and the filing of a claim resulting
from that treatment. Because of this, claims-made premiums are structured
to increase each year that the coverage is in continuous force until
the risk presented approximates a "mature" risk. This
is usually in years 5, 6, or 7 for individual physicians.
a result, one advantage of claims-made coverage is that premiums
are based on actual past and current experience. Policyholders therefore
do not pay premiums for future liability that is difficult to project.
advantage of claims-made coverage is that it enables physicians
to increase liability limits when necessary. For example, the limits
of liability in effect at a policy's inception may not be enough
to cover a settlement incurred today. In this case, the physician
may which to increase his or her limits of liability. The most desirable
claims-made policies establish the limits of liability available
to the policyholder as those in effect at the time a claim is reported
rather than those in effect at the time the incident occurred.
claims-made policies only cover claims reported, and arising from,
incidents that occurred while that policy is in effect, policyholders
must be wary when switching carriers or otherwise terminating coverage.
When terminating a claims-made policy with one carrier, physicians
should obtain either "tail" coverage (extended reporting
coverage) from their old carrier or retroactive (prior-acts) coverage
from their new carrier. Both of these coverages insure against claims
reported after the end of the original policy period for incidents
that occurred while that policy was in effect.
When purchasing a claims-made policy, prospective insureds should
look for a guaranteed right to purchase tail coverage. They should
also verify the length of time that tail coverage will be available
since some companies offer tail coverage only for a fixed number
of years. Another feature to look for is tail coverage that is provided
at no charge upon retirement for permanent and total disability
and in the event of death.
for tail coverage are determined by a doctor's specialty, territory,
limits of liability and length of continuous claims-made coverage.
Tail coverage gets more expensive the further back in time it must
provide coverage since the liability assumed by the carrier becomes
greater. It is usually a percentage of the insured's prior years
Acts ("Nose") Coverage
Prior acts coverage provides similar protection as reporting endorsement
coverage. However, unlike a "tail," nose coverage is purchased
through the new insurer.
occurrence policy insures for any incident that occurs while the
policy is in effect, regardless of when a claim is filed. Under
an occurrence policy, insureds pay premiums that take into account
not current experience, but future projections as well. Such claims
are called "incurred but not reported" (IBNR). Occurrence
insurance rates can vary significantly because of the difficulty
in projecting future claims expenses. Under an occurrence policy,
the limits of liability are those in effect when the incident occurred.
advantage of an occurrence policy is that neither retroactive (prior
acts) nor tail coverage is needed when terminating coverage.
coverage is often used by Trusts. Under a claims-paid policy, premiums
are based only on claims settled during the previous year and projected
for the current year. Claims-paid policies are generally assessable
for a number of years after the policy has been terminated. In addition,
claims-paid policies usually have restrictive claims "triggers,"
under which a claim is not considered formally made until a "Summons
and Complaint" is received. As a result, policyholders changing
from claims-paid coverage to claims-made coverage might find it
difficult to obtain retroactive (prior acts) coverage from the new
carrier. Physicians leaving a claims-paid carrier will most likely
have to purchase expensive tail coverage from that claims-paid carrier.