Navigating the complexities of malpractice insurance is a critical aspect of medical practice, regardless of your career stage or employment model. Whether you’re an employed physician in a large group, a shareholder in a private practice, or associated with a self-insured institution, understanding your professional liability coverage is paramount. Many physicians learn the intricacies of malpractice insurance only after facing challenging situations, highlighting the importance of proactive knowledge. This guide aims to provide a comprehensive overview of Malpractice Insurance For Doctors, ensuring you are well-informed about your coverage, potential liabilities, and how to make informed decisions to protect your career and financial well-being.
Understanding the Types of Malpractice Insurance Policies
Professional liability insurance, commonly known as malpractice insurance, primarily comes in two forms: claims-made and occurrence policies. While the insurance landscape today is dominated by claims-made policies, understanding the nuances of each type is crucial.
Claims-Made Policies: Coverage Based on Claim Reporting
Claims-made policies are structured to provide coverage only when both the medical incident occurs and the claim is reported while the policy is active with the same insurance carrier. This means that for a claim to be covered, two key events must happen during your coverage period: the alleged medical error must take place, and the subsequent lawsuit must be filed.
A critical consideration with claims-made policies arises when you decide to terminate or switch your coverage. If you discontinue a claims-made policy, any future claims filed against you for incidents that occurred during the policy period will not be covered unless you purchase “tail coverage,” also known as an extended reporting endorsement. Tail coverage essentially extends the reporting period of your former policy, allowing you to report claims that arise after the policy’s termination but stem from incidents that occurred while you were insured.
Tail coverage can represent a significant expense, often costing as much as three times your annual premium. However, it is an essential safeguard to ensure continuous protection against potential malpractice claims.
Figure 1.
Figure 1: J. Michael Wormley, MD, discussing the importance of tail coverage in physician employment contracts.
The financial implications of tail coverage, especially when changing employment, are significant. Dr. J. Michael Wormley, chairman of Mutual Protection Trust, points out, “That can be a real speed bump for an oncologist just coming out of a fellowship and joining a group. The group pays for malpractice insurance, and tail coverage is often not spelled out if the physician leaves. After 2 or 3 years, the doctor wants to leave the group. Who pays the tail?” Therefore, it is vital to explicitly address responsibility for tail coverage in your employment contracts to avoid potential financial burdens when transitioning between practices.
An alternative to tail coverage is “nose coverage,” or prior acts coverage. This option, offered by a new insurance carrier, can cover liabilities arising from incidents that occurred under a previous claims-made policy.
Figure 2.
Figure 2: Richard E. Anderson, MD, explaining the choice between tail and nose coverage when switching malpractice insurance carriers.
Dr. Richard E. Anderson, chairman and CEO of The Doctors Company, explains, “When physicians move from one carrier to another, they can choose between tail coverage with the expiring carrier or nose coverage with the new carrier.” When considering a change in carriers, it’s prudent to obtain quotes for both tail coverage from your current insurer and nose coverage from prospective insurers. When securing either tail or nose coverage, verify that the retroactive date aligns with the start date of your previous policy to ensure seamless coverage. Furthermore, clarify the policy’s aggregate limits, which define the maximum amount the insurer will pay for all claims within a specified period, and understand if these limits apply annually or over the entire policy duration, especially with tail coverage.
Occurrence Policies: Lifetime Coverage for Incidents During Policy Period
Occurrence policies offer a broader scope of protection compared to claims-made policies. They provide lifetime coverage for any medical incident that occurs while the policy is in effect, regardless of when the claim is filed. For instance, if you held an occurrence policy in 2023 and a patient files a lawsuit in 2026 related to an event in 2023, your 2023 occurrence policy will cover the claim, even if you no longer maintain coverage with that insurer.
While occurrence policies offer more comprehensive long-term security, they typically come with higher premiums, especially in the initial years. Claims-made policies are often less expensive initially because the risk of claims accumulates over time. The first-year premium for a claims-made policy can be significantly lower, ranging from 10% to 30% of the “mature rate,” which is the full premium rate. Premiums for claims-made policies then incrementally increase over a period of 3 to 5 years until they reach the mature rate. When comparing malpractice insurance costs, it’s essential to inquire about the premium progression beyond the first year to accurately assess the long-term financial implications.
Matching Your Malpractice Insurance Coverage to Your Practice Needs
The adequacy of your malpractice insurance policy is directly linked to your practice scope and risk profile. Most policies offer coverage limits ranging from $100,000 to $300,000 per claim, with aggregate limits from $1 million to $3 million annually. The per-claim limit is the maximum the insurer will pay for a single claim during the policy period, while the aggregate limit is the total amount the insurer will pay for all claims within the same period, typically one year. It is crucial to recognize that if settlements or judgments exceed your policy limits, you will be personally responsible for the excess amount.
Dr. Anderson advises physicians, particularly those starting their careers, to ensure their policy limits are in line with prevailing standards. “You want to have limits that are what everyone else has,” he recommends. “Having higher limits may help you sleep better, but it means you will be the deep pocket in a lawsuit naming other defendants. Normally, you want prevailing limits based on your geographical area and your specialty.” In states with damage caps, such as California, Florida, and Texas, lower limits might be justifiable. It is also crucial to confirm that your policy covers the full spectrum of your clinical activities, including any specialized procedures or treatments you provide.
For practice owners or shareholders, it’s essential to verify that coverage extends to the professional corporation and all employees. Determine whether policy limits are shared collectively or apply individually to each insured person. Solo practitioners or small practices should consider including locum tenens coverage in their policies, which many insurers offer for 30 to 120 days annually at no additional premium.
Understanding How Malpractice Insurance Premiums Are Determined
Insurance carriers calculate premiums by estimating the total amount needed to cover anticipated claims and distributing this cost across their insured physicians. This risk-pooling mechanism allows insurers to spread potential financial liabilities and establish annual premiums.
Several factors influence your individual premium rate, including your medical specialty, geographic location, and personal claims history. Dr. Anderson of The Doctors Company notes, “We set rates by analyzing the losses by specialty, state, territory, and trend. Each specialty stands on its own, and we don’t ask docs in California to subsidize docs in New York.” Specialties with higher perceived risks, such as surgery or obstetrics, generally face higher premiums compared to lower-risk specialties. Similarly, geographic areas with a history of higher malpractice claims may also incur higher premiums.
The extended timeframe between a medical incident and the resolution of a malpractice claim poses a unique challenge in premium setting. Dr. Anderson illustrates this point: “Even once you know how many claims there were in a year, you don’t know how much the claims cost until they are resolved—an average of 3.5 years later. In oncology practice, it would be like buying drugs for your patients and having to collect money from them when you deliver the drugs, but not knowing for 3.5 years how much your supplier was going to bill you for the drugs.” This latency necessitates sophisticated actuarial models to predict future claim costs and set appropriate premiums.
Comparison Shopping for Malpractice Insurance
When selecting malpractice insurance, premium cost should not be the sole determining factor. The financial stability of the insurance carrier, their claims handling processes, and their responsiveness to policyholders are equally important considerations. Seeking feedback from physicians who have filed claims with a particular carrier can provide valuable insights into their claims handling practices and overall service quality.
Dr. Anderson advises caution regarding assessable insurance policies. “Physicians should understand clearly whether their insurance is assessable, meaning the insuring entity has the right to assess a surcharge if losses are excessive. Many risk-retention groups and captives and all trusts are assessable. In the malpractice crisis between 2001 and 2004, there were a number of companies that were forced to come back and assess their members.” Assessable policies, while potentially offering lower initial premiums, carry the risk of additional surcharges if the insurer’s losses exceed projections.
Dr. Wormley, representing a trust, acknowledges this potential drawback: “When a traditional insurance company sets a premium for a particular year, it overassesses to build its reserves for future losses. A trust doesn’t build reserves, which is why our rates are cheaper.” While trusts may offer lower premiums by forgoing reserve building, it’s crucial to weigh the potential for reassessment against the initial cost savings. Dr. Wormley emphasizes that his trust mitigates this risk through “lots of layers of reinsurance” and a stringent underwriting process, focusing on “well-trained, board-certified physicians.”
When comparing policies, scrutinize the policy details and carrier services to ensure you are making an apples-to-apples comparison. Unusually low premiums may indicate higher deductibles or reduced coverage features. A deductible is the amount you must pay out-of-pocket before the insurance policy begins to cover claim-related expenses, settlements, or judgments.
The Importance of a Consent-to-Settle Clause
Figure 3.
Figure 3: Dr. Patricia Legant, MD, PhD, highlighting the significance of a consent-to-settle clause in malpractice insurance policies.
A critical clause to look for in your malpractice insurance policy is a “consent-to-settle” clause. Dr. Patricia Legant, MD, PhD, who practices oncology and serves on the board of directors of Utah Medical Insurance Association, emphasizes, “Be sure to check to see if your insurance policy contains a clause specifying that a claim against you can’t be settled without your written consent.”
Insurers may sometimes prefer to settle a claim, even if it lacks merit, to avoid potentially higher defense costs associated with litigation. However, any settlement, regardless of fault, must be reported to the National Practitioner Data Bank, which can negatively impact your insurance status, participation in managed care networks, and hospital privileges applications.
Without a consent-to-settle clause, your insurer has the authority to settle a case against your wishes, even if you believe you are not at fault. A consent-to-settle clause grants you the right to be consulted and provide written consent before any settlement offers or counteroffers are made in your name. Negotiating for this clause to be included in your policy is highly advisable.
While the right to consent to settlement is important, it’s also crucial to understand that settling a claim can sometimes be in your best interest. Settlement can help avoid the risk of a verdict exceeding your policy limits and mitigate the significant time, emotional energy, and financial resources required for prolonged litigation. Your assigned defense attorney should thoroughly advise you on your options, associated risks, and available alternatives. Disagreements between physicians and insurers regarding settlement decisions are sometimes reviewed by a committee for resolution.
Some policies may include a “hammer clause” instead of a consent-to-settle clause. A hammer clause activates if you decline a settlement recommendation from your insurer and choose to proceed to trial. If the trial results in an award exceeding the insurer’s recommended settlement amount, you become responsible for paying the excess. Prior to purchasing a policy, attempt to negotiate for a consent-to-settle clause and the exclusion of a hammer clause.
Understanding Defense Costs Coverage
Carefully review your policy’s coverage for defense costs, which encompass the expenses incurred in defending and processing a lawsuit, separate from the actual settlement or judgment amount. Defense costs include attorney fees, expert witness fees, court reporter fees, and administrative expenses.
Some policies may not cover defense costs at all or may impose limitations on the amount the insurer will pay. If your policy caps defense costs, ensure that the overall policy limit is sufficiently high to cover both defense expenses and potential settlements or judgments. Ideally, your policy should provide “ultimate net loss” coverage, which covers both attorney fees and defense costs in addition to any awards or settlements, rather than “pure loss” coverage, which may not adequately cover defense expenses.
If you are sued for an amount exceeding your coverage limits or if your insurer is defending you under a “reservation of rights” (meaning they are investigating coverage while defending you), it is prudent to retain your own independent defense counsel in addition to the attorney provided by the insurance carrier. Ultimate net loss coverage may help you recover expenses associated with retaining your own defense attorney in such situations.
Key Considerations When Choosing a Malpractice Insurance Carrier
While premium costs are a factor, evaluating a carrier’s financial health, claims handling reputation, and policyholder support services is equally crucial. Talking to physicians who have had claims with a carrier can provide valuable firsthand insights into their claims process and support.
Inquire whether the carrier offers risk management programs for physicians and if they have resources for emotional support for defendants. Dr. Legant’s insurance association, for example, offers premium discounts to policyholders who participate in their risk management programs. Dr. Wormley’s trust mandates risk management education for physicians and their office managers and conducts on-site risk evaluations every three years. Actively participating in risk management programs offered by your insurer is a proactive step in mitigating potential malpractice risks.
Your state insurance commissioner’s office can provide information about licensed insurers in your state and may also have records of complaints filed against specific insurers. Researching the financial stability of an insurance company is not merely an academic exercise; insurer insolvencies have occurred, leaving policyholders vulnerable.
Dr. Legant recommends checking the carrier’s A.M. Best rating. “The Best rating is a fair estimation of the solvency of the company,” she states. “Given the current state of the medical malpractice climate, a rating of A minus is good.” A.M. Best is an independent industry analyst whose ratings are widely considered an industry benchmark for assessing an insurer’s financial strength.
Types of Malpractice Insurance Carriers
Insurance carriers differ in their organizational structure, ownership, financial stability, and regulatory oversight. Common types of carriers include:
- Commercial insurers: Traditional insurance companies operating for profit.
- Mutual insurers: Owned by policyholders, with profits potentially returned to policyholders as dividends or premium reductions.
- Captive insurers: Wholly owned subsidiaries created by healthcare systems or physician groups to insure their own risks.
- Trusts: Physician-owned and operated entities that pool premiums to cover claims, often assessable.
- Risk-retention groups: Insurers owned by their members, typically physicians, and regulated under federal law, often assessable.
A significant factor for many physicians is whether a carrier is physician-owned and operated. Physician-owned companies insure a substantial portion of US physicians who purchase their own insurance. These companies may be structured as trusts, captives, mutuals, risk-retention groups, or for-profit corporations.
Physician-owned carriers often emphasize advantages such as greater control over underwriting and claims decisions. Dr. Legant believes physician-run insurers tend to be “more sympathetic to physicians because their goal is to serve physicians and give them a fair shake. For example, they would be less likely to settle for the sake of just saving money.”
Dr. Wormley illustrates the claims handling process in his physician-owned trust: “A peer review committee meets face to face with the doctor being sued, who is there with his attorney.” He emphasizes that while the carrier pays the attorney, the attorney’s primary responsibility is to represent the physician’s interests. The committee’s goal is to assess the defensibility of the claim, prioritizing merit over financial considerations, aiming to avoid settling non-meritorious claims.
Additional Resources
- Physician Insurers Association of America (PIAA): A trade association representing physician and dentist-owned professional liability insurance companies: www.piaa.us; (301) 947-9000
- A.M. Best Company: Independent industry analyst providing financial ratings for insurance companies: www.ambest.com; (908) 439-2200
- Anderson R (ed): Medical Malpractice: A Physician’s Sourcebook. Totowa, NJ, Humana Press, 2004
Good Practices for Malpractice Insurance Management
Meticulously Complete Your Application
Ensure your insurance application is filled out thoroughly and accurately. Incomplete or inaccurate information can jeopardize your coverage in the event of a claim.
Keep Comprehensive Records
Maintain copies of your insurance coverage documents for every year of your practice, including your training period. If you were not provided with copies, request them from your program director. The policy document serves as the definitive proof of your coverage, as insurers are not obligated to maintain permanent records of your policy. Also, retain copies of all correspondence with your insurance carrier.
Verify Tail Coverage Payment
If your employment agreement stipulates that your previous group practice will pay for tail coverage upon your departure, directly confirm with the insurance carrier that the payment has been received to ensure continuous coverage.
More Strategies for Career Success
- Deciding about practice options. J Oncol Pract 2:187-190, 2006
- The interview: Make it work for you. J Oncol Pract 2:252-254, 2006
- Employment contracts: What to look for. J Oncol Pract 2:308-311, 2006
- Joining a practice as a shareholder. J Oncol Pract 3:41-44, 2007
- Principles and tactics of negotiation. J Oncol Pract 3:102-105, 2007
- Professional advisors: They’re worth it. J Oncol Pract 3:162-166, 2007
- Building and maintaining a referral base. J Oncol Pract 3:227-230, 2007
