This page contains thirty questions and answers covering basic information about 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
  3. Types of Carriers
  4. Other Questions

Malpractice Information—Policy Terminology

Q1: What is a claims-made policy?

A claims-made policy 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 providers 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). [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 moves coverage and maintains the 01/01/2010 coverage date as a “retro date” or purchases a tail policy. 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 any malpractice claims arising out of her service at the XYZ Clinic and does not need to purchase a tail policy or use a retro date on his next 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 continues working at the MNO Clinic through 12/31/2015. Each year, the MNO Clinic renews the claims-made policy with for coverage with a retro date of 01/01/2010. At the end of 2015, Dr. Brown’s five-years of continuous coverage is 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—Liability Issues

Q7: What are the elements of medical malpractice?

  • Medical malpractice requires that:
    • A duty was owed by the provider to the patient;
    • The provider failed to fulfill the duty owed to the patient;
    • The patient was injured by the provider’s failing and;
    • The patient’s injury results in damages.

  • All four of these criteria have to be met to sustain a malpractice case. [Go Back]

Q8: What constitutes a duty owed to the patient by the provider?

Duty to the patient by the provider is clear when a patient establishes to be a patient of that provider. This issue can be clouded in other situations, such as practice management, consults and interactions outside of the office. Patients may assert that providers have a duty for care resulting from referrals to other providers or “care” rendered outside of the office, (such as when a provider is “curb-sided” for their opinion). [Go Back]

Q9: What is vicarious liability?

Vicarious liability may exist when a patients claims a duty to care was owed that the provider did not intend. If a Provider A subleases to Provider B, Provider A may be subject to vicarious liability if the two providers do not maintain clearly separate practices, such as separate intake paperwork, separate signage, etc. If the patient can argue that they reasonably assumed Provider A and Provider B were part of the same entity, both providers may have liability regardless of whether the providers intended to establish a duty to care for the patient. [Go Back]

Q10: What determines if the provider fails to fulfill the duty owed to the patient?

The duty owed to the patient is determined by the standard of care for the treatment of the patient. If the provider fails to follow the generally accepted treatment protocols in the patient’s treatment, they may breach their obligation to the patient. Providers are held to the standard of care resulting from their training. A cardiologist practicing as a primary care physician could be held to higher standards for cardiovascular treatment than a primary care physician not trained in cardiology. [Go Back]

Q11: How is an injury determined to be caused by the provider’s failure to fulfill their duty to care?

In some cases, such as a surgical error, it is clear that the provider is responsible for a bad outcome. In other cases, such as ongoing treatment of a chronic disease, it is more difficult to connect a bad outcome to the provider’s care. In order to sustain a medical malpractice case, patients need to show that but for the alleged negligent care of this provider, the bad outcome would have been avoided. A relatively new concept in injury theory is the “loss of chance” doctrine, which allows for injury based on the reduced chance to avoid the bad outcome, even if the bad outcome was likely. [Go Back]

Q12: What type of damages are available in a medical malpractice case?

Patients can seek economic damages, (lost pay and future medical bills), as well as noneconomic damages, (pain and suffer as well as loss of consortium). Economic damages typically can be calculated, (e.g. What would a comparable profession earn in a lifetime? What is the projection of future medicals bill?). Noneconomic damages represent damages that are more difficult to value. Some states place a cap on noneconomic damages. Even if a provider has a duty to a patient, breaches that duty and injures the patient, patients must show that these events led to damages. As a result, medical malpractice cases tend to involve provider care that significantly impacted the patient. If the patient was merely inconvenience by even negligent care, they do not have a medical malpractice case. [Go Back]

Q13: What is a consent to settle clause?

In the event of a malpractice claim against an insured provider, the malpractice carrier will provide the legal defense for the provider and manage the case. While both the provider and the insurance company would like the claim dismissed or dropped as soon as possible, each party has some exclusive objectives. The insurance company wants to limit the amount they spend defending the claims, (while the provider wants the best defense money can buy). The provider wants to avoid any outcome that might be reflected on his professional record, (which really doesn’t matter to the insurance carrier).

These objectives can be in conflict if the plaintiff makes an offer to settle the malpractice claim. The proposed settlement amount could be less than the insurance carrier plans on spending defending the claim, but the amount could be reportable against the provider. Some policies include a consent to settle clause to address this situation. With a consent to settle clause, the insurance carrier needs the provider’s consent to settle the malpractice claim. [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]

Malpractice Information—Other Questions

Q18: How are traditional rates determined?

The rates of traditional carries are determined by the rates filed with the state department of insurance (DOI) for each specialty. The DOI monitors rates and discounts of the traditional insurance carriers to provide stability to the malpractice market. These rates become the benchmark for the market. [Go Back]

Q19: How are rates for new providers and mature providers determined?

Traditional insurance carriers increase the rates of new providers over the first several years of practice in consideration for their limited previous exposure. The rate increase from a new provider to a mature provider typically occurs over four to five years. Rates can increase significantly from years one and two to years three, four and five. Rates can also reflect the perceived risk of a provider’s practice and previous loss history. [Go Back]

Q20: What is a deductible?

To reduce the insurance carrier’s risk, some policies may impose a deductible that the provider has to pay for each claim. [Go Back]

Q21: What is a loss history?

A loss history shows the malpractice claims and payments made for the provider. Insurance carriers will request the provider’s loss history when preparing a quote. The loss history helps insurance carriers determine the risk they believe insuring the provider represents. The insurance carriers will request a claim narrative for each claim listed on the loss history, which provides the details of each case. [Go Back]

Q22: What is a “dec” page?

A dec page is the declaration page from the insurance policy that shows the policy period, coverage amounts, insurance carrier, covered parties and retro date, (if any). Because an insurance carrier may be forced to defend providers if there is any question about a policy being in place, insurance carriers will require dec pages showing the current policy coverage and past policy coverages. Providers should obtain a dec page each renewal and retain it for their records. It can be difficult to obtain past dec pages as employers and insurance carriers go out of business or change ownership. [Go Back]

Q23: What is an incident compared to a malpractice claim?

Policies usually require providers to report incidents that could lead to a claim to their insurance carrier. Reporting an incident is left to the provider’s discretion. Reporting every bad outcome or patient complaint is unreasonable. Besides being a lot of work, this documentation could lead the insurance carrier to view the provider as a greater risk and increase rates. Providers do benefit from reporting incidents that may lead to a malpractice claim because these incidents will be covered under the policy term. Any time a patient alleges breach of the provider’s duty to care resulting in an avoidable bad outcome, the provider should consider reporting the incident to their insurance carrier. [Go Back]

Q24: What is an extended reporting period endorsement with a term?

Some insurance carriers may offer an extended reporting period endorsement that has a specified two or three year term, which provides coverage beyond the termination of a claims-made policy. An extended reporting period with a term is different from a traditional tail policy, however, as the extended reporting period will term, leaving the provider without coverage for the policy period. [Go Back]

Q25: What happens when an insurance carrier leaves a market?

Insurance carriers can leave a market for various reasons, including excessive risk and exiting the medical malpractice line of business. The exiting insurance carrier will give notice of termination to its insured providers. The exiting insurance carrier may arrange for their policies to be transitioned to another insurance carrier. Once a carrier leaves a market, it becomes much more difficult to obtain previous dec pages and loss histories. [Go Back]

Q26: Why would an insurance carrier become insolvent?

Insurance companies can become insolvent, which occurs when the insurance carrier’s liabilities exceed their cash and assets. This can occur when the insurance carrier has an excessive number of claims or adverse judgements. The insurance carrier may also lose market share or see their other expenses increase, such as marketing, management or administration. If the insurance carrier cannot correct the financial position, they may become insolvent. [Go Back]

Q27: What happens when a traditional insurance carrier becomes insolvent?

When a traditional insurance carrier becomes insolvent, state guarantee funds will be available for defending ongoing malpractice claims. The state DOI may also make arrangements for another insurance carrier to fulfill the responsibilities of the insolvent carrier, such as providing retro coverage, dec pages and loss histories. Because traditional carriers are regulated by the state DOI, they are seen as the least likely of the different types of insurance carriers to become insolvent. [Go Back]

Q28: What happens when an excess or surplus lines insurance carrier becomes insolvent?

When an excess or surplus lines insurance carrier becomes insolvent, state guarantee funds will not be available for defending ongoing malpractice claims, which could result in the provider being responsible for litigation costs and any settlement, judgement or award. Once an excess or surplus lines carrier is out of business, it may be impossible to obtain coverage for the policy period. [Go Back]

Q29: What happens when a risk retention group insurance carrier becomes insolvent?

Due to their structure, a risk retention group (RRG) may assess members before becoming insolvent, which means that insured providers—the members of the RRG—may see the cost of their policy increase significantly to provide operating capital to the RRG. Once a RRG becomes insolvent, state guarantee funds will not be available for defending ongoing malpractice claims, which could result in the provider being responsible for litigation costs and any settlement, judgement or award. Once a RRG is out of business, it may be impossible to obtain coverage for the policy period. [Go Back]

Q30: What happens when a risk purchasing group insurance carrier becomes insolvent?

When a risk purchasing group (RPG) becomes insolvent, RPG members will lose the benefit of the RPG, such as any reduced rates or policy benefits. The insolvency of the RPG would not affect the underlying insurance carrier’s responsibility to defend claims or to provide retro coverage, dec pages or loss histories. [Go Back]