“Claims-made” vs. “Occurrence-based” Malpractice Insurance Coverage
Our physician-clients approach us with many questions regarding malpractice insurance coverage. The most common ones are “what kind of malpractice insurance is the employer providing me?” and “who will pay for tail coverage if I leave the employer?”
Nowadays, most employers pay for malpractice insurance for their practicing physicians, especially for beginning and non-shareholder physicians. The details of the policy should be laid out in the employment contract and policy documents. So, relatively speaking, this issue is rarely negotiated – most of the time it’s already in the contract!
The issue of “tail” coverage is another matter. Some physicians will need tail coverage when they change employers and others won’t. To understand whether “tail” coverage is needed, one must understand the difference between the main two types of malpractice insurance: claims-made vs. occurrence-based.
Claims-made insurance protects a physician from malpractice lawsuits only if the physician’s insurance carrier at the time of the alleged malpractice event is the same insurance carrier as at the time of the malpractice lawsuit. For example, if insurance carrier A was the malpractice insurer in 2013 when the alleged malpractice event occurred, and is still the insurance carrier in 2016 when a lawsuit is ﬁled, the physician is covered for the lawsuit. However, if between 2013 and 2016 the physician switches from insurance carrier A to insurance carrier B, the physician is not covered, unless an insurance “tail” was purchased. The switch from one insurance carrier to another usually occurs during a job change.
With occurrence-based insurance, any malpractice event will be covered by the insurance carrier, provided it was the carrier at the time of the alleged malpractice event, regardless if it is the carrier at the time the lawsuit is ﬁled. For example, if a physician is covered by insurance carrier A with occurrence-based insurance in 2013 when an alleged malpractice event occurs, but the lawsuit is not ﬁled until 2016, insurance carrier A will provide coverage for the lawsuit, even if the physician is currently insured by insurance carrier B.
What’s the lesson here? To recognize the type of insurance that is being offered. Put simply, with claims-made insurance you need a tail, but with occurrence-based insurance you don’t.
Who should pay for the tail insurance? There is no general rule – it could be the “old” employer, the “new” employer, the physician or a combination of those. The cost of tail insurance is normally a one time assessment that can be as much as 1.5 to 2 times a typical annual malpractice insurance premium. This means several thousand dollars are at stake when this issue is negotiated.
That is why it is important for you to seek counsel and make informed decisions on this and other critical matters related to your employment. By doing so, physicians can keep practicing and focusing on the aspects of their job and life that truly matter to them, and take the worry of things like a potential malpractice suit off their mind.