Medical Malpractice Insurance for Physicians: Types, Costs & Considerations

Sometimes the least intriguing aspects of working in the healthcare field can be the most important.

Despite the fact that we all know the importance of medical malpractice insurance, many physicians and healthcare facility administrators consider coverage only to the extent of cost and damage payment caps. This short-sighted view (or incomplete understanding) of malpractice insurance policy options has the potential to destroy entire practices; as does inadequate management of a malpractice policy.

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Understanding Malpractice Insurance

In its most basic terms, medical malpractice insurance simply implies the transfer of a provider's professional liability to a third party, generally an insurance company, through a contract. Like any insurance policy, it's a way to set up safeguards against the risk of damages — in this instance safeguarding a physician and/or a practice.

It's important to understand that signing a malpractice coverage agreement does not guarantee the security of a physician or practice. In the past, practices purchasing malpractice coverage on a claims-made basis with a pre-paid "tail" nonetheless failed because the carrier suffered financial difficulties and folded. Why? The carrier was a surplus lines carrier, rather than an admitted carrier, which prevents state guaranty funds from relieving a portion of any settlement. So, if a physician at this practice faces a claim for treatment provided while under contract with the troubled carrier, lawyers will seek damages from the entity with the deepest pockets — most likely the practice, rather than the physician.

Types of Malpractice Insurance

There are many different types of medical malpractice insurance providers — stock, mutual, reciprocal, risk retention group, risk purchasing group, surplus lines, self-insurance programs, and so on. But there are only a few types of malpractice coverage. By far, the most common types are:

• Occurrence. This type of malpractice insurance provides coverage for any incident that occurs during the policy's term, regardless of when a claim is made. Occurrence policies are "long-tail" policies, which ensure coverage for the life of the patient and the physician. In other words, the policy's coverage remains in force even if the provider changes jobs or the company shuts down.
• Claims Made. This insurance policy type provides coverage for claims that both occur and are reported to the insurer while the policy is in force. Thus, incidents that occur occurring during a policy period but which are reported after its expiration or discontinuation can expose a provider and facility to potentially significant damages, unless someone has also purchased "tail" coverage. Claims-made policies must be renewed annually; when the contract period ends, coverage can be continued by purchasing "tail" coverage.

These types of malpractice policies differ, as well, in their distribution of aggregate amounts set aside for claims settlements. For instance, on a claims-made form, the aggregate amount covers the term of the policy. But with occurrence policies, the full aggregate amount is made available each year, and the aggregate is not diminished over time.

Malpractice Insurance: Costs and Components

Claims-made policies also tend to cost less than occurrence policies, and therefore remain quite popular. Factors that affect how much a policy costs include:

• Physician or provider specialty (costs vary based upon exposure to risk)
• Type of coverage, occurrence or claims made
• Limits of liability (aggregate amounts, deductibles and managed care requirements)
• Location of practice (costs vary widely by state, county and city)
• Loss history.

A medical malpractice insurance contract usually breaks down into a few basic components: Declarations include the policy number, name of the insured parties, coverage dates, liability limits, specialty classification, deductibles and the premium. The insuring clause states the intent of the coverage. Conditions specify the responsibilities of each party, the company and the insured, and list exclusions that can delete or reduce coverage.

In broad terms, the coverage provider promises to defend and indemnify on behalf of the insured, while the physician, practice or practitioner commits to report any claims, to cooperate with the company in the event of claims investigations and settlements, and to provide consent for a settlement. Common exclusions to malpractice contracts include incidents and issues unrelated to clinical care (such as general liability like auto and fire; contractual liability; criminal or sexual acts; and claims arising from services rendered outside covered dates and locations).

A malpractice coverage contract may also include endorsements placed at the request of the insured (or mandatory by company policy or state regulation). Coverage may further be restricted or broadened through riders, changes in terminology, and by the naming of additional providers to the coverage agreement.

When evaluating malpractice coverage, one must also be aware of "consent-to-settle" clauses. Each insurance company classifies itself as either a "consent-to-settle" company or a "pay-on-behalf" company. Consent-to-settle companies refuse to settle a case without the approval of physicians named in the lawsuit. Pay-on-behalf companies, however, do not require a physician's consent for the settlement of a claim, nor are they required to notify physicians in the case of a lawsuit. Some physicians and practitioners have applied for positions or licensure only to discover that they have several marks against them, of which they hadn't been made aware. More than merely a nasty surprise, such unexpected inaccuracies on an application cause significant delays in licensure proceedings — among other problems.

For new physicians and seasoned practitioners alike, understanding medical malpractice insurance is critical to success. And that holds even more true for locum tenens professionals. Join us on Thursday for a look at locum tenens-specific considerations for malpractice insurance.

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