What are the different types of Medical Malpractice Insurance Policies?
Understanding the types of medical Professional Liability Insurance Policies that are available is important. There are two basic policies, Occurrence and Claims-made.
What is an Occurrence Policy?
This kind of policy provides coverage for claims that may arise from incidents which occurred while you had a policy in force, regardless of when a claim is reported, even if the policy is no longer in force. Thus, occurrence coverage provides long-term continuing protection for the physician.
For example: A physician had an Occurrence policy in effect from January 2000 to January 2008, at which time the existing policy was not renewed. In February of 2009, a patient treated in 2007 filed a claim against the physician. Since the physician had an Occurrence policy in effect in 2007, the company that insured him in 2007 would defend him, based on the 2007 coverage.
What is a Claims-Made Policy?
This type of policy provides protection for claims that ‘arise and are reported’ while you have a policy in force. You are covered up to the policy limits in effect at the time the claim is reported. Therefore, a physician is only covered if the claim is actually filed while the policy is in force. To be protected for claims which are reported after the policy has been canceled, you must purchase ‘tail coverage’, (Extended Reporting Period endorsement), or obtain similar protection from a subsequent carrier. A claims-Made Policy must continue in force to provide protection, or be replaced by tail coverage. When you elect to change claims-made carriers, ‘Prior Acts Coverage’ must be obtained to cover your exposure from your first day of claims made coverage.
For example: A physician had a claims-made policy from January 2008 to January 2009, at which time the policy was not renewed, and tail was not purchased. In February 2009, a patient treated in 2007 files a claim against the physician. The physician would have no protection against this claim, because the claim was not reported during the policy period.
What is the difference in pricing between the two policy types?
Occurrence rates are usually the basis for pricing of medical professional liability insurance. During the first few years of coverage, Occurrence coverage rates are generally higher Than Claims-Made Coverage. This is because the cost of claims that may be reported at some unknown time in the future is taken into consideration in the determination of Occurrence rates. The Claims–Made rates increase annually, until they reach ‘maturity’, which in New Jersey is in the fifth year and in New York is in the eight year.
Claims-Made coverage takes into consideration the insurance company’s exposure to claims that may be reported on a year to year basis. The longer the period you are insured with a company, the greater the possibility of a claim being reported; thus, the annual premium increases.
What is Tail Coverage?
A supplement to a claims-made policy that provides coverage for any incident that occurred while the claims-made insurance was in effect, but had not been brought as a claim by the time the insurer-policyholder relationship terminated. Tail coverage, also known as an Extended Reporting Endorsement, is generally necessary whenever an insured covered by a claims-made policy does not continue an active policy.
What is Prior Acts Coverage?
A supplement to a claims -made insurance policy that may be purchased from a new carrier when a physician changes carriers And had Claims-Made Coverage with the previous carrier. A prior acts policy, also known as ‘nose’ coverage, covers incidents that occurred prior to the beginning of the new insurance relationship, but for which no knowledge of any claim possibility exists.
What are Prior Acts?
Prior Acts are incidents that may have occurred, but have not yet been filed as claims, prior to the onset of the insurance company-insured relationship. Companies typically require a new insured to purchase supplemental coverage (either tail or prior acts coverage) to protect against claims arising from prior acts.
What are Limits of Liability?
The maximum amount an insurer will pay out under the terms of a policy. Professional liability policies typically specify both, a per occurrence limit and an aggregate limit for all claims incurred during the term of a policy, e.g., $1 million (per occurrence)/$3 million (aggregate).