The ABCs of malpractice insurance

For doctors in independent practice, decisions about malpractice insurance may be among the most important they will make. That’s because in addition to the significant financial commitment, doctors need an insurance carrier whose judgment, expertise and financial resources they can count on if they are ever faced with a lawsuit. 

With that in mind, here are some of the basics doctors need to know when purchasing malpractice insurance.

Types of policies

Malpractice insurance policies come in two flavors: “occurrence” and “claims-made.” They differ in that an occurrence policy provides coverage for any action brought against a doctor during the time the policy was in effect, regardless of when the lawsuit is brought. The coverage applies even if the doctor is sued at a point in the future when the policy is no longer in effect, says Patricia Lawrence, assistant vice president of business development at The Doctors Company, a national malpractice insurance provider.

By contrast, says Lawrence, a claims-made policy provides coverage only so long as the policy is in effect, and under the terms of the policy in effect at the time the suit is brought. “If you have a claims-made policy and are sued for an event that occurred in 2016, the claim will be attached to the policy as it exists today,” Lawrence explains.

Another difference between the two is that the premiums for claims-made policies usually are lower, at least in the first years of the policy, says David Zetter, CHBC, president of the practice consulting firm Zetter HealthCare in Mechanicsburg, Penn. That’s because when a claims-made policy lapses-either because the doctor retires or leaves a job where the employer provided insurance-the doctor has to buy a “tail policy” for coverage in the event they are sued over something that happened at their previous job or before they retired.

Tail coverage is usually available from the doctor’s previous insurance carrier, Zetter says, but often at a substantially higher cost-in part to make up for the lower premiums in the first years of the policy.

“Basically, an occurrence policy is going to be a full premium payment from day one and covers any claim, regardless of when it’s brought, while claims-made allows a doctor to go in at a lower premium that they make up with the cost of tail coverage. So no matter what, the insurance company gets the full premium for their coverage,” Zetter says.

Lawrence says many insurance carriers, including The Doctors Company, provide free post-retirement tail coverage as a benefit to long-time policyholders.

Cost

In addition to the type of policy, malpractice insurance premiums are determined largely by the physician’s specialty and location. Some specialties, especially those that involve surgery, carry higher risks and thus more potential liability for the insurance carrier, Lawrence explains.

Similarly, carriers have to take into account the wide variation in malpractice payouts among and even within individual states. Other factors used to set premiums, Lawrence says, include any previous claims history, number of hours worked per week, how long a doctor has practiced, and whether they perform procedures outside their specialty.

Where to buy insurance

Doctors and practices can buy malpractice coverage either directly from a carrier or through an insurance broker. If going the direct route, experts advise researching the carrier’s financial strength rating from A.M. Best-and to buy from a company with an “A” rating or better-as well as its reputation for customer service.

And while comparative shopping is always useful, getting more than a handful of quotes can be counterproductive, Zetter says. That’s because other carriers could perceive a wide search as meaning the doctor is having difficulty getting coverage, and price their own quotes accordingly. For the same reason, it could also harm a doctor’s credit rating.

“That’s not to say you shouldn’t shop your malpractice every few years to make sure there aren’t better deals out there. You just don’t want to do it with more than two or three carriers at a time,” he says.

Legal representation

Legal representation is probably the most important service malpractice carriers offer to their policyholders. And while that system works well most of the time, there are circumstances where a doctor may want to hire their own attorney, says Fred Cummings, JD, a healthcare attorney with Dickinson Wright in Phoenix, Ariz.

Cummings cites examples such as if the insurer doesn’t think a plaintiff’s claim in a lawsuit is covered by the doctor’s policy, or if the company loses a case at trial it could have settled out of court, and the amount awarded the plaintiff exceeds the limits of the doctor’s policy, thereby leaving the company on the hook for the entire amount of the settlement. 

Conversely, there may be times when the insurer wants to settle a case out of court but the doctor doesn’t. Cummings says most policies now include a “consent to settle” provision, which requires the carrier to get the doctor’s permission before seeking an out-of-court settlement.

“A doctor giving consent to an insurance carrier will pretty much guarantee some money gets offered because every case has some value,” Cummings says. “But whether it’s sufficient to settle the case is another matter. And that’s where the physician may need another lawyer, to pressure the company to enforce [the doctor’s] rights under the contract.”