All physicians must have malpractice insurance. But all policies are not alike. It is critical that you choose one that fits your practice's needs. After all, if you do not choose wisely, your practice could find itself in a tenuous financial and legal situation in the event of a lawsuit.
Explore Types of Coverage
Practices must address malpractice coverage by asking: How much protection does it want, for what period and events? Malpractice coverage is stated in terms of limits per claim and the aggregate limit on payments over the life of the policy.
There are several types of coverage to choose from. Most practices will be concerned with claims-made, tail and nose policies. A "claims-made" policy covers incidents that may occur during the policy period and that are reported while the policy is still in force.
When a doctor changes policies, it's possible that some claims will be uncovered before the new policy kicks in. The gap can be filled by either "tail" coverage, which takes care of claims that arise after leaving the previous carrier, or "nose" coverage, which extends coverage of the new policy to an earlier date. Tail coverage is also typically purchased when a physician retires.
Review the Provisions
There are several policy provisions physicians should review. Most will include a "consent to settle" clause. It requires the carrier to obtain the physician's written permission before settling a claim against him or her. Without it, the insurer can settle a claim that the physician believes is defensible.
Several states have set up medical review panels and all claims must be heard by the panel before legal action can be taken. This reduces frivolous claims and helps lower premiums.
Another provision is related to the legal costs of defending a claim. Those costs, which can be upwards of $100,000, may be included "inside" or "outside" the policy limits. The latter is better. Otherwise, a $100,000 legal defense bill will be subtracted from a $1 million per occurrence limit, leaving $900,000 to cover court awards and damages.
Also consider claim acknowledgment. An insurance carrier may acknowledge that a claim has been made either by requiring that the insured physician receive a "written demand for damages" from a prospective plaintiff, which means the physician must wait to be sued, or the doctor is allowed to report an adverse outcome as a potential claim, known as "incident reporting."
Select a Carrier
Malpractice insurance companies take many forms. Some are physician-owned ("captive" insurers); others are traditional commercial entities. Work with a broker or an independent agent to find the insurer that best suits your practice.
The carrier must have sufficient financial resources to satisfy current and future damages claims against its policyholders. A close look at the carrier's annual report and other financial statements will reveal information about its surplus, net written premiums and loss reserves — key metrics of financial strength. Also look at ratings issued by industry analysts such as A.M. Best Company and Fitch. A rating of "A-" or better is desirable.
Equally important is the carrier's management philosophy, which is reflected in its underwriting standards, claims management and actuarial policies.
The cost will depend on the carrier as well as the coverage needed and the physician's history of adverse events. Take advantage of preventive services that carriers offer to practices to help reduce their legal risk and maintain patient safety. For example, they may provide risk management tools through bulletins, publications and educational programs.
Protect Your Practice
Choosing the appropriate malpractice insurance will help protect you and your practice. Your CPA and attorney can help lead you through the process.
Health Care Group Newsletter — Fall 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
