Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)
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In the current environment of increased malpractice litigation, large jury awards and settlements are proliferating, insurance premiums are soaring, and purchasing professional liability insurance coverage can be daunting. Nonetheless, malpractice insurance is an indispensable component of a physician’s practice. Practitioners must fully investigate all of their options and be fully informed about the nature and extent of the coverage they are purchasing. In these matters, an experienced insurance broker can be helpful. Many physicians make mistakes when purchasing malpractice coverage. Such mistakes can be financially devastating.
Mistake 1 Selecting Insurance Based on Short-Term Cost
Physicians often purchase professional liability insurance based on the cost of the premium. But premiums vary from specialty to specialty and from insurer to insurer. In the current market of ever-changing companies, it is important to evaluate all aspects of coverage in light of the cost of the policy. The chosen insurance company should be well established and financially sound. Often, the assumption that policies or insurance companies are interchangeable is incorrect, and physicians should refrain from having the premium cost be the sole consideration in making a choice. More important is that physicians purchase coverage from a company that stands behind its policy and provides the protection necessary if a claim is filed.
Action Step Physicians should fully investigate the company from which they are purchasing coverage, its track record in the industry, and all aspects of coverage before basing a decision on short-term cost.
Mistake 2 Selecting the Wrong Malpractice Insurance
Understanding the extent of coverage being provided is important. The most common type of professional liability insurance coverage available is a “claims-made policy,” which provides for protection of claims that occur and are reported while the policy is in effect. Within the conditions of a claims-made policy, a claim must be reported to the carrier in writing by the insured. An “occurrence policy” covers acts that occur while the policy is in effect. It does not matter if coverage is in effect when the claim is made. Under an occurrence policy, coverage will be provided for all events that occur while the policy is in effect even if the physician later cancels the policy. Occurrence policies tend to have higher premiums than those of claims-made policies, and they may be more difficult to obtain.
Action Step Physicians should be aware of the extent of the coverage being provided. They should be mindful that an occurrence policy provides the best coverage.
Mistake 3 Failing to Obtain Supplemental Coverage When Changing Insurance
Changing insurance coverage (whether related to a change in employment, a change in carrier, or a change in coverage) can leave a gap in available coverage. “Tail coverage” is a policy that can be purchased when a physician terminates a claims-made policy for any reason. The tail allows the physician to continue reporting claims for the years that he or she was insured under the original policy. “Prior acts coverage” (also referred to as “nose coverage”) provides coverage for claims that arise from the “prior acts” of the policyholder while insured with the previous claims-made carrier. Prior acts coverage eliminates the need to purchase a reporting endorsement. It covers claims first made against a physician after the effective date of coverage on the policy. To be covered, such claims must arise out of the physician’s acts performed before the policy’s effective date and after its retroactive date.
Action Step When purchasing a policy, physicians should evaluate whether coverage will be provided for prior and subsequent acts that occur in relation to the policy period being purchased.
Mistake 4 Failing to Understand the Limits of Liability Coverage and to Obtain Excess or Umbrella Coverage
The limits of liability coverage are the maximum amount that will be paid under the terms of the policy. A professional liability insurance policy usually has two limits: a per-claim limit and an annual aggregate limit. For example, a $1 million to $5 million limit means that the most that would be paid on any claim is $1 million and the number of yearly $1 million claims that could be paid on behalf of a physician is five, for a total annual aggregate of $5 million. Excess, or umbrella, insurance is a separate insurance policy that provides limits above the primary or “first dollar” policy. It is important for physicians to understand the amount of coverage that will be available for the policy period if there is a possibility that the entire aggregate could be used based on claim history; if such a possibility exists, an investigation into the purchase of excess or umbrella coverage should be undertaken.
Action Step Physicians should be aware of their potential liabilities and investigate what their potential liabilities might be. They should be sure to purchase realistic coverages in light of their potential exposure.
Mistake 5 Failing to Understand and Evaluate the Contract When Insurance Is Purchased for a Physician
In certain instances, a hospital or a group may purchase insurance that provides coverage for the individual practitioner. It is important that physicians be aware of the specifics regarding this coverage. They need to know whether they are protected individually and the context in which that protection is provided. Also, they need to investigate whether coverage is available for any conduct outside the hospital or group setting. In addition, they need to be aware of the nose and tail coverages in these instances.
Action Step Physicians should evaluate any policy provided for them by a hospital or group practice to ensure that they are covered for all professional conduct.
Mistake 6 Failing to Understand a Policy’s Exclusions, Conditions, and Noncompliance Provisions
All professional liability insurance policies contain limits on liability per occurrence and, in the aggregate, deductibles and coverage contingencies. Such contingencies can include timely payment of premiums, timely reporting of occurrences, and timely reporting of any changes in the professional practice. Each professional liability insurance policy includes specific conditions. The policies provide that the practitioner must cooperate with claims investigations and that the practitioner notify the insurer in writing of any illness or disability that might potentially impair the physician’s ability to practice medicine after the physician is aware of any such illness or disability. The policy sets forth guidelines for the reporting of claims and the handling of claims once the carrier is on notice. The policies and procedures for reporting claims differ from carrier to carrier. It is important that coverage contingencies and conditions be complied with; failing to do so can impair the available coverage. If coverage contingencies and conditions are not complied with, an insurance carrier may refuse coverage or dispute coverage in a litigated matter.
Action Step Physicians should be fully aware of any and all exclusions, contingencies, and conditions in their policy. They should comply with them to ensure that coverage will be continuous and available.
Mistake 7 Failing to Pay Attention to Endorsements That Add, Exclude, or Modify Coverage
An endorsement is an amendment (sometimes referred to as a rider) that is added in writing to an insurance contract or policy. Endorsements might add coverage for additional groups or employees. They may also exclude or modify coverage for specific acts or specific individuals. A physician in a group practice, with licensed or certified practitioners or assistants, should consider coverage for the acts of those individuals during the course of their employment. Under the theory of respondeat superior (or vicarious liability), the practitioner can be held liable for the acts of these individuals and thus coverage for that conduct should be considered.
Action Step Physicians should evaluate all professional services being rendered and ensure that any and all services that they may be ultimately responsible for will be covered under their policy.
Mistake 8 Failing to Pay Attention to the Duration of the Insurance Coverage
A policy of insurance has a specific policy term. That term is the length of time for which a policy is written. The policy will define the specific dates and describe the obligations and responsibilities of the insureds during this period of time. It is important for the practitioner to continue to maintain consistent coverage, to be aware of the policy period dates, and to have protocols in place to ensure that coverage is continuous.
Action Step Physicians need to be acutely aware of the policy period and ensure that coverage is continuous from term to term.
Mistake 9 Failing to Retain Records of Coverage Dates and Providers
In some instances, a claim for malpractice may be filed years after the actual treatment occurred. In those instances, the physician may need to consult with prior carriers to determine which carrier provided coverage for the act in question. It is therefore important that physicians maintain an insurance file that includes all information relating to professional liability insurance coverages, with policy terms and information on the type of policy that was purchased.
Action Step Physicians should keep an insurance file with all information on coverages or maintain that information through their broker.
Mistake 10 Failing to Obtain Adequate Coverage for Specific Practice Factors
Premiums will vary from specialty to specialty. Certain areas of practice have been designated as high-risk specialties, including neurology, ob-gyn, surgery, and emergency medicine. Physicians should be mindful of the area of their practice and the risks that have been affiliated with that type of medicine. They should consult with their broker to determine that they have adequate coverages in the event that a claim is made. These types of factors will be calculated when determining their premium.
Action Step Physicians need to be mindful of the specific liability issues related to certain types of clinical practice groups and maintain sufficient coverage in light of that information.
In the current environment, a physician must be an educated consumer when it comes to purchasing professional liability insurance. The thorough investigation of companies, claims-handling measures, and cost will provide beneficial information when purchasing coverage. An experienced broker can be of great assistance in these matters.
Anne M. Oldenburg, Esq.
Peer reviewed by:
Linda J. Hay, Esq.,
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