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Medical malpractice insurance is — to say the least — a complex and confusing issue. The subject can be intimidating to physicians, especially those faced with purchasing a new policy or who are dealing with an incident or claim for the first time.
Malpractice terms
Malpractice insurance
A generic term used to refer to physicians’ professional liability insurance coverage. A malpractice policy provides protection against liability that a physician may incur as a result of the rendering of—or the failure to render—medical services. A typical malpractice policy will pay: (1) the costs of investigating any claims against an insured physician; (2) the costs of defending those claims; and (3) the indemnity cost of any legal settlement on behalf of—or court judgment against—the insured physician, up to the policy limits.
A professional liability policy may be extended to include coverage for a physician's corporation (P.C.), as well as employees. Unless specifically endorsed, coverage is not extended to include physician assistants, nurse practitioners, nurse midwives, or CRNAs, and may not provide coverage for residents or locum tenens physicians. Policies are either written on a claims-made or occurrence basis.
Occurrence coverage
Occurrence malpractice policies provide coverage for incidents that occur while the policy is in effect, regardless of when the incident is reported to the insurer.
Claims-made coverage
Claims-made policies provide coverage for incidents that occur after the retroactive date and are reported to the insurer while the policy is in force.
Retroactive date
For coverage under a claims-made policy to apply, the incident or claim must have occurred after the retroactive date of the policy. For most physicians, this retroactive date is the first date they purchased claims-made professional liability coverage. The retroactive date should remain the same as the policy is renewed.
Tail
A tail is also known as an extended reporting period (ERP). An ERP may need to be purchased if a physician ceases to practice due to retirement, disability, or death, or changes carriers and is unable to maintain their original retroactive date. The ERP essentially extends coverage to all claims that arise from care rendered during the policy period (and prior acts period, if applicable), to include those made during the reporting period.
Some carriers may limit the ERP and only allow claims to be reported for a specific period (12 months, 36 months, etc.). The carrier will charge an additional premium for the ERP, which is typically a percentage of the annual premium. It is preferable to purchase an unlimited ERP, however, that option is not always available. In some cases, the carrier will provide a free tail to the physician upon disability, death, or retirement. To obtain the free tail, the physician generally needs to be insured by the same carrier for a minimum of five years.
Prior acts period
Under a claims-made policy, the prior acts period, also known as “nose” coverage, is the period of time between a physician’s retroactive date from a prior policy and the current policy period.
Common questions about malpractice insurance
What is the typical length of a policy period?
Most malpractice policies have a 12-month policy period.
What limits are typically provided?
All policies have limits of liability. This is the maximum amount an insurer will pay out under the terms of the policy. The limits are generally offered on a per-claim (or per-occurrence) and annual aggregate basis.
For example, a policy may have a $1 million per-claim limit with a $3 million annual aggregate limit. This is frequently stated as $1 million/$3 million. The most the policy will pay for any one claim is $1 million, and the most the policy will pay in any one year for all claims reported is $3 million.
What does a policy typically cover?
A malpractice insurance policy usually provides coverage to the insured for damages resulting from the rendering of, or failure to render, professional healthcare services.