Professional Liability Insurance Terms
Claims-Made Coverage:
Claims-made 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 practiceoners.
Since 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, practioners 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.
Tail Coverage:
Premiums for tail coverage are determined by a practitioners 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 premium.
Prior 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 Coverage:
An 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.
The advantage of an occurrence policy is that neither retroactive (prior acts) nor tail coverage is needed when terminating coverage.
Statute of Limitations:
The period time within which an injured patient can bring a medical malpractice lawsuit is called the Statute of Limitations. The Statute of Limitations for bringing a medical malpractice lawsuit and the special rules that apply vary from state to state and the type of defendant.
Limits of Liability:
Limits of Liability pertains to the amount of coverage an individual policy contains. Some companies offer group coverage and individual coverage. Individual coverage with coverage separate for the company is preferred. Coverage of $1million/$3million for a group will not usually be accepted by Hospitals.
Deductible:
Deductible is the amount an individual will have to pay out of pocket before the insurance begins to pay. Some liability companies offer a no deductible policy, and some offer higher premiums to cover the cost of the deductible. Different deductibles may be available at higher rates to lower the premium amount.
Defense Outside the Limits of Liability:
Defense outside the limits of liability means the cost of the defense of a suit does not effect the face amount of the liability policy.
Defense Inside the Limits of Liability:
Defense inside the limits of Liability means the cost of defending a case will be deducted from the face amount of the policy.
Liability Company Ratings:
Companies are rated by AM Best. These ratings range from A++ to F. Companies with ratings of A- or lower should be avoided, as they may be in financial difficulty. AM Best also rates companies with a I to X (1 to 10) This number refers to the financial size of the company. The higher the number the more assets that are available to pay malpractice claims.
Substitute Coverage:
Substitute Coverage is coverage for an individual for a short term usually under 15 days at a time. This coverage is mainly for the company or entity who hires or allows the individual to work at a contracted account. The contracted individual must have their own liability policy in affect in the amounts required by the client. Insurance companies require notification of the individual and period of coverage. Companies may deny substitute coverage based on an individuals past claims history.
Cancellation or Non-Renewal:
Acceptable reasons for cancellation or nonrenewal of medical malpractice policies include:
- Nonpayment of premiums
- Mutual consent of parties to the contract of insurance
- Fraud or material misrepresentation in the application for insurance or renewal
- The insured’s license or certification, or registration has been subject to a restriction, suspension, or revocation during the policy period
- Discovery of willful, reckless or illegal acts or omissions by the insured that increase the hazard insured against
- Determination by the Commissioner of Insurance that continuation of the policy would violate or place the insurer in violation of the law.
