Shopping for security

What every family physician should know about buying medical liability insurance

By John Alexander, Vice President, Underwriting, Texas Medical Liability Trust

I have never met anyone who admits they like shopping for insurance — whether it’s auto, homeowners, health or any other type of coverage. When you purchase medical liability insurance to protect your reputation and your medical practice, for example, there are many variables to consider. Not only must you consider what is best for you and your practice, you must also be able to evaluate the insurance carrier who will be providing your protection.

Whether you are purchasing your first medical liability policy or considering changing carriers, it is essential that you explore the options and make an informed choice about the company who will be at your side if a claim occurs. This article will describe the types of medical liability insurance, discuss what to consider when choosing a policy and explain how to evaluate a carrier.

Medical liability coverage formats

There are two policy formats commonly available in today’s marketplace: claims-made and occurrence. Both policies cover the same hazards, but there are important distinctions for physicians to consider.

The most common type of policy available is claims-made. When a claims-made policy is first issued, a retroactive date is assigned. The date establishes the beginning date for coverage under the policy, and this date is carried forward on subsequent renewal policies. Claims that arise from care given after the retroactive date are covered by the annual policy that is in effect when the claim is reported (and that policy’s limits of coverage and policy conditions apply). If the policy is continuously renewed each year with no gaps in time, coverage continues under the current policy back to the retroactive date.

An occurrence policy provides coverage for incidents that occur during the policy period regardless of when the incidents are reported. The policy that is or was in force at the time of the incident is the policy that covers the claim. Occurrence policies are not as common as claims-made policies.

Prior acts or tail coverage?

When a claims-made policy is cancelled, the policyholder usually has two coverage options to ensure that there are no gaps in protection. If neither coverage option is purchased after the policy is cancelled, no coverage will exist for claims arising from care given between the retroactive date and the policy cancellation date.

The most common way to continue coverage when changing carriers is to secure prior acts coverage from the new carrier. This transfers responsibility for unreported claims that occurred after the old policy’s retroactive date, but before the cancellation date, to the new carrier.

When doctors stop practicing or coverage is cancelled for other reasons, continued coverage in the form of a reporting endorsement (also called tail coverage) is often purchased from the current carrier. This endorsement guarantees coverage in the future for claims arising from care that took place between the retroactive date and the policy cancellation date. The cost of tail coverage is often considerable. Accordingly, most physicians prefer to buy tail coverage only when they retire or have agreed to do so for contractual reasons. Most established companies offer some type of free tail coverage agreement to retiring physicians who meet specific requirements.

Also, be aware that there may be differences in how companies treat changes in practice specialty or relocations during the physician’s career. Some companies mandate the purchase of tail coverage if the physician changes specialties during the course of the policy. Since the cost of tail coverage may be considerable, it is wise to consider this when planning major changes in your practice.

Do premiums for claims-made and occurrence policies differ?

While each company’s pricing structure is different, generally, both occurrence and claims-made policies share that company’s “mature” rates. When you purchase an occurrence policy, you pay the full mature rate each year. When you purchase a claims-made policy, you usually pay a reduced premium for the first three or four years, until the maturity year when you start paying the full “mature” rate.

With an occurrence policy, there are no tail or prior acts issues to contend with. It is easy to determine the policy cost and where coverage resides at any given time. With a claims-made policy, it is a little more difficult to determine the real cost of coverage and where coverage resides. Compared with an occurrence policy, the money saved during the first three or four years of a claims-made policy may or may not offset the cost of tail coverage. When determining which type of policy is best for your practice, you may need to consider the value of free tail coverage at retirement and any current cash flow issues.

How to choose limits of liability

How much coverage should you carry to be well protected? Choosing policy limits — or the maximum dollar amount available to protect you for any individual claim or for all claims — depends on many factors, including your specialty, practice location, the procedures you perform and your type of practice. To determine what limits to carry, talk to your colleagues, your financial advisor or attorney. Also be aware that some health insurance plans and hospitals may require that you carry certain limits to maintain a contract or hospital privileges. In general, an insurance carrier will not tell you what limits to carry, but can explain how reducing or increasing limits will affect your premium. They should also be able to tell you what limits other physicians in your specialty or area typically carry.

Another caveat: some carriers may not cover or may impose limit restrictions on certain procedures. For example, some insurers may not cover VBAC or bariatric surgery. If a claim or lawsuit occurs in relation to an excluded procedure, you will not have coverage. It is important to work closely with your underwriter to make sure you understand what your policy will cover and what it will exclude so there are no surprises.

You should also be aware of what most medical liability insurance policies will not cover — defense against criminal allegations, allegations of sexual misconduct and allegations that you violated a state or federal statutory or regulatory law (such as antitrust statutes or Deceptive Trade Practices Acts). These exclusions will be explained in the policy.

Consent to settle

Confirm that the policy has a “consent to settle” clause. This means that the company cannot settle a claim without the express, written consent of the policyholder. Not all companies include such a provision in their policies. Some are silent on the issue, while others stipulate that the carrier retains the right to settle a claim. If a claim is settled on your behalf, it can affect your career for years. It is in the physician’s best interest to retain the right of consent.

Evaluating a carrier

When shopping for a medical liability insurance policy, it is a good idea to take a look at the company from which you will be buying. It is crucial that an insurance carrier have sufficient financial resources to meet all current and future claims against policyholders.

A company without adequate financial reserves may be one excess jury verdict away from bankruptcy. Review the company’s annual report and other financial statements to evaluate its financial stability. If you are unsure how to evaluate the financial data, ask your CPA, financial advisor or attorney to go over it with you.

What is the company’s defense philosophy? Does it vigorously defend its policyholders or simply settle the case? To determine this, ask how many claims it closes with no indemnity payment. A company that believes in defending claims rather than paying them will close the majority of their claims with no indemnity payment. Does the carrier have a designated claims department to handle claims internally? Some carriers employ outside claims managers and these may or may not be located in your state. The knowledge a carrier has of your state’s claims environment may be limited. What is the carrier’s record in the courtroom? This is an indication of the strength of the company’s claim management and defense attorneys.

Malpractice laws differ from state to state, so make sure your chosen carrier has experience with Texas claims. How many Texas policyholders does the company currently insure? This is an indication of its experience in Texas and its commitment to the state. Remember, it was only four short years ago that many malpractice carriers left Texas because of unfavorable market conditions, leaving their policyholders to find coverage in a limited market.

Claim prevention and risk management programs should be an integral part of the service you receive from a physician-centered medical liability insurer. The carrier should provide you with ongoing information on how to prevent lawsuits through publications and educational programs. Check to see if you get a premium discount by participating in these programs.

Making your choice

Purchasing medical liability insurance is an intensive, time consuming process, but remember, the carrier you choose will protect one of your greatest investments — your career in medicine. Take the time to learn about the insurance product you are buying and the quality of the provider. Ask your colleagues. What kind of reputation does the carrier have? Are policyholders treated fairly? If they have had a claim, what was their claim experience like?

By thoroughly evaluating all your options, you can make the right choice and get the best value from the field of available medical liability providers.