Malpractice Insurance – Why Does It Matter?
Deciding between two types of malpractice insurance—either an occurrence based policy or a claims-made policy—can save you tens of thousands of dollars in legal bills and settlements.
An occurrence based policy provides coverage against incidents that occurred during the term of the policy, regardless of when the claim is made. The physician can submit a malpractice claim while the insurance policy is active or after it has expired, as long as the physician was covered with an active policy at the time the actual incident occurred.
A claims-made policy refers to a policy covering the insured for any incidents that occur during the policy period. Claims filed after the policy ends will not be covered, even if the actual event occurred during coverage.
Neither of the policies will provide coverage for incidents occurring before the inception date of the policy (also known as the retroactive date).
There is a way, however, to maintain coverage after a claims-made policy ends. Tail insurance refers to a policy the insured provider can purchase when he or she discontinues the claims-made policy. Tail insurance permits the physician to report claims after the policy expires for incidences that occurred during the time the policy was active (from the retroactive date to the policy expiration date). Tail insurance is generally purchased with a onetime payment that can be fairly expensive.
Based on this information alone, you might conclude that an occurrence based policy is the best option because it provides coverage for incidents that occurred during the time the physician had insurance, without the need to buy tail coverage. However, a significant difference between the two policies is the premium cost. Occurrence based insurance is generally more expensive than claims-made insurance. Most physicians purchasing their own insurance will opt for claims-made policies because the premiums are less expensive. If a physician stays in the same practice his or her whole career, most claims-made policies will provide “free” tail insurance at retirement.
If it can be determined that a physician will be eligible for “free” tail coverage, claims-made insurance is usually most cost beneficial. One time a physician may want to consider an occurrence-based policy is if he or she is working at a location for a short time, will not be able to take coverage to a new job, and does not want to buy tail insurance when starting a new job. If a physician is employed by a hospital, the hospital may also provide occurrence-based insurance.
When deciding on which malpractice insurance to purchase, review the overall costs, as well as the type of coverage that will be best for the physician’s situation.