Understanding Malpractice Insurance: Essential Insights

When first starting your medical career you might feel inadequately prepared to navigate the complexities of medical malpractice insurance. Often, your coverage is managed by your employer group, which selects the insurance and negotiates the terms on your behalf. However, even if you are not making the purchasing decision, you should have a general understanding of your insurance coverage, the process for handling lawsuits, and the implications if you change employers or insurance carriers.

For providers with their own practice, a more comprehensive grasp of insurance is essential for decisions regarding carrier selection, policy negotiations, and premium allocation among providers. For those employed by institutions with self-insurance, like county or university hospitals, your risk management department can guide you through coverage details and procedures in the event of claims or incidents.

Policy Types to Understand

Professional liability insurance comes in two primary forms: claims-made and occurrence. Though claims-made policies dominate the market, a few carriers are able to offer occurrence policies.

Occurrence Policies: These provide lifetime coverage for incidents that took place during the policy period, irrespective of the year in which the claim is filed. So, if you have an occurrence-type policy in place for 2008 and a patient files a claim in 2010 for an incident in 2008, the policy covers you for that claim, even if you're no longer insured by that carrier.

Claims-Made Policies: Claims-made insurance offers coverage solely for incidents that both happened and were reported while your coverage is in place with that particular carrier. This means both the incident itself and the filing of the claim must occur while the policy is active. A retroactive date applies which is the date of the first Claims-made policy went into effect, or incepted.

If you decide to drop a claims-made policy, or leave the group providing your insurance coverage, you won't be covered for any subsequent lawsuits unless you opt for "tail coverage," an extended reporting endorsement that comes at a significant cost – sometimes three times the annual premium. Ensure your employment contract specifies who is responsible for tail coverage costs. This tail coverage is essential to ensure you're protected against any claims that may surface once the policy reporting period expires.

Claims-made policies tend to be cheaper in the initial years compared to occurrence policies. The first-year premium for a claims-made policy could be notably low, around 10% to 30% of the "mature rate." The premium then progressively increases annually over a span of 3 to 5 years until it reaches the mature rate. When assessing the cost of different malpractice insurance policies, be sure to inquire about the premium hike post the first year.

Understanding Premium Calculation

Insurance carriers estimate the money required for claims and distribute the total among policyholders to spread risk and calculate annual premiums. Your specialty, location, and personal claims history influence your premium. Premium rates are determined based on aggregate claims data analyzed by specialty, states and trends such as inflation. The uncertainty of claim costs until their resolution, which can take around 3.5 years, adds to the challenges in determining medical malpractice insurance rates.

Additional Considerations

Seek Consent-to-Settle Clauses

A crucial aspect to scrutinize is whether your policy contains a consent-to-settle clause. This provision ensures that a claim against you cannot be settled without your explicit approval. Settlements can impact your insurance status, participation in managed-care groups, and hospital privileges. If your policy doesn't incorporate this clause, the insurer can settle a case against your wishes, even if the lawsuit against you is highly defensible.

In some cases, policies feature a "hammer clause" instead of consent-to-settle clauses. Hammer clauses are invoked when you decline the insurer's settlement recommendation and opt for a trial. If the trial leads to an award exceeding the settlement recommendation, you're obligated to pay the excess amount. When considering a policy, strive to secure consent-to-settle clauses while eliminating hammer clauses.

Coverage for Defense Costs

Verify how defense costs are addressed in your policy – these costs encompass expenses related to defending and processing a lawsuit, distinct from the award or settlement amount. Defense costs involve the fees of the defense attorney, expert witnesses, court reporters, and clerical expenses. Some policies limit defense cost coverage, or they might not cover them at all. If a policy sets a cap on defense costs, ensure the overall policy limit sufficiently covers both defense costs and settlement or judgment amounts.

Assessing Insurance Carriers

Look beyond premiums—consider an insurer's financial health, claims handling, and support for policyholders.

Verify Financial Stability: Scrutinize the financial stability of an insurance company. This isn't just a formality – numerous insurers have faced instability during turbulent periods, gone insolvent, and are unable to pay or defend a provider’s lawsuits. Checking a carrier’s A.M. Best ratings is a prudent move in obtaining insurance coverage. A.M. Best Company is an independent industry analyst, and its ratings are considered to be a benchmark for financial health and solvency. An A- rating is generally considered favorable given the current medical malpractice climate.

Understand Carrier Types: Familiarize yourself with common types of carriers: commercial, mutual, captive, trust, and risk-retention group. Each type varies in structure, ownership, financial stability, and adherence to state regulations.

By comprehending these crucial aspects of malpractice insurance, you can safeguard your career and financial stability.

For more information, consult resources like the Physician Insurers Association of America or reach out to your insurance broker. Practice good habits, such as meticulously completing insurance applications, maintaining thorough files, and verifying tail coverage payments.