e3BFM’s Premium Client Content includes answers to all thirty Medical Malpractice Q&As.

This page contains answers for Policy Terminology and Types of Carriers for medical malpractice, (or professional liability insurance), for medical providers. This information represents consulting knowledge from experience in medical management and risk management for a risk retention group. This is not legal advice and does not represent the advice of an insurance agent.

 

      1. Policy Terminology
      2. Liability Issues
        • Q7: What are the elements of medical malpractice?
        • Q8: What duty is owed to the patient?
        • Q9: What is vicarious liability?
        • Q10: What determines of the provider fails to fulfill the duty owed to the patient?
        • Q11: How is an injury determined to be caused by the provider’s failure to fulfill their duty to care?
        • Q12: What type of damages are available in a medical malpractice case?
        • Q13: What is a consent to settle clause?
      3. Types of Carriers
      4. Other Questions
        • Q18: How are traditional rates determined?
        • Q19: How are rates for new providers and mature providers determined?
        • Q20: What is a deductible?
        • Q21: What is a loss history?
        • Q22: What is a “dec” page?
        • Q23: What is an incident compared to a malpractice claim?
        • Q24: What is an extended reporting period endorsement with a term?
        • Q25: What happens when an insurance carrier leaves a market?
        • Q26: Why would an insurance carrier become insolvent?
        • Q27: What happens when a traditional insurance carrier becomes insolvent?
        • Q28: What happens when a surplus lines insurance carrier becomes insolvent?
        • Q29: What happens when a risk retention group insurance carrier becomes insolvent?
        • Q30: What happens when a risk purchasing group insurance carrier becomes insolvent?

Malpractice Information—Policy Terminology

Q1: What is a claims-made policy?

A claims-made policy generally provides coverage for incidents that are reported during the policy’s active period. Once a claims-made policy is terminated, there is no coverage for unreported incidents unless an extended reporting endorsement or “tail policy” is purchased. Claims-made policies are usually less expensive than occurrence-based policies. [Go Back]

Q2: What is an occurrence-based policy?

An occurrence-based or occurrence policy provides coverage for incidents that occur during the policy’s active period even after the policy is terminated. There no is need to purchase a tail coverage when an occurrence-based policy is terminated. Occurrence-based policies are usually more expensive than claims-made policies. [Go Back]

Q3: What is a tail policy?

A tail policy provides coverage for provider exposure once a claims-made policy is terminated. Tail policies usually cost one-to-two times the provider’s last annual premium. Insurance carriers may offer “perma-tail” coverage for physicians who retire after so many years of coverage with the carrier. [Go Back]

Q4: What are prior acts coverage and a retro date?

Prior acts coverage provides exposure for incidents prior to the effective date. The date prior acts coverage begins is the retro-active or “retro” date. When providers with claims-made policies move insurance or practices, they can request to maintain their current coverage’s effective date. This is sometimes referred to as “nosing-in,” (as opposed to “tailing out”). [Go Back]

Q5: What are policy limits?

Standard malpractice policy limits are $1 million/$3 million. This means that the policy will cover up to $1 million per claim and $3 million for all claims during the policy. Providers can be responsible for judgements in excess of the policy limits. Some policy also include defense costs within the policy limits, which reduces the amount available for judgement and increases the provider’s financial exposure. [Go Back]

Q6: What acts or services are covered in a malpractice policy?

Insurance carriers rely on the provider application to determine covered acts. The provider should list all of the services provided in their practice. Most applications have a check list for the provider to indicate the services offered by the provider. Unless otherwise indicated, the insurance carrier is covering the acts the provider lists on their application. Acts not listed on the application may not be covered by the insurance carrier. Some outside acts may be covered, (such as duties performed on a peer review panels), while other outside acts may be excluded, (such duties performed as a medical director). If an application contains errors, omissions or material misrepresentations, an insurer may try to rescind coverage in the event of claim, by arguing that had the application been accurate, the carrier would not have offered coverage.  [Go Back]

Example #1

Dr. Smith’s first job was at the ABC Clinic starting January 1, 2010. The ABC Clinic purchased a claims-made policy to cover Dr. Smith from 01/01/2010 through 12/31/2010. Dr. Smith leaves the ABC Clinic on December 31, 2010 without any incidents being reported to the malpractice carrier. Dr. Smith will have no coverage for any malpractice claims arising out of his service at the ABC Clinic in 2010 unless he purchases a tail policy or he moves coverage to a new policy and maintains the 01/01/2010 coverage date as his “retro” date. The malpractice carrier for this new policy would then cover Dr. Smith for any malpractice claims arising out of his service at the ABC Clinic in 2010.

Example #2

Dr. Jones’ first job was at the XYZ Clinic starting January 1, 2010. The XYZ Clinic purchased an occurrence-based policy to cover Dr. Jones from 01/01/2010 through 12/31/2010. Dr. Jones leaves the XYZ Clinic on December 31, 2010 without any incidents being reported to the malpractice carrier. With an occurrence-based policy, Dr. Jones has coverage for any malpractice claims arising out of her service at the XYZ Clinic and does not need to purchase a tail policy.

Example #3

Dr. Brown’s last job was at the MNO Clinic starting in January 1, 2010. The MNO Clinic purchased a claims-made policy to cover Dr. Brown from 01/01/2010 through 12/31/2010. Dr. Brown continued working at the MNO Clinic through 12/31/2015. Each year, the MNO Clinic renewed the claims-made policy for coverage beginning 01/01/2010. At the end of 2015, Dr. Brown’s policy provides that his five-years of continuous coverage has qualified him for perma-tail coverage. He can retire and the carrier will maintain coverage for his service at the MNO Clinic from 01/01/2010 without the purchase of a tail policy. [Go Back]

 

Malpractice Information—Types of Carriers

Q14: What is a traditional carrier?

Traditional carriers are standard market carriers that follow guidelines established by the department of insurance (DOI) in each state the carrier operates. The DOI reviews and accepts rates, operations and cash reserves of traditional carriers. Traditional carriers participate in state guaranty funds that protect the provider against the insolvency of the insurance carrier. If the insurance carrier goes out of business before resolving all claims, the guaranty fund will step-in and fulfill the insurance carrier’s obligation to the provider. [Go Back]

Q15: What is a surplus lines carrier?

A surplus lines carrier is not approved the state’s department of insurance (DOI) and does not participate in state guaranty funds. A surplus lines carrier typically has more flexibility in provider coverage because they are not closely regulated by the DOI of each state. Traditionally, providers who have trouble obtaining a policy from a traditional carrier due to issues such as a high loss history, gaps in coverage or nonstandard services will have their policy placed with a surplus lines carrier, although favorable premiums are attracting more providers to surplus lines carriers and risk retention groups.  [Go Back]

Q16: What is a risk retention group (RRG)?

A risk retention group (RRG) is a self-insured group of medical providers. Providers have to join the RRG to obtain coverage and become a member through a capital contribution. A RRG is regulated by the state in which it is domiciled but can file to do business in other states. RRGs do not participate in state guaranty funds. RRGs can assess their members for additional capital contributions. While the providers own the RRG, they often outsource the operations to a captive manager. [Go Back]

Q17: What is a risk purchasing group (RPG)?

A risk purchasing group (RPG) is a group of medical providers with similar exposure who join together to purchase insurance from the same insurance carrier. RPGs seek to leverage the combined premium of its members for favorable premiums and terms from insurance carriers. RPG typically do not require capital contributions and do not assess members. The availability of the state guarantee funds is based on the insurance carrier selected by the RPG. [Go Back]