Top 10 Things to Consider When Buying a Medical Malpractice Insurance Policy
Gallagher Healthcare :: Industry InsightsBy Erik Czirr | 12/17/2013
There is a significant amount of information on medical malpractice insurance and the accompanying different kinds of policies and features a physician can purchase. While it is beneficial that so much information is available, it can actually lead to many physicians feeling overwhelmed and confused rather than informed and enlightened. It is with this underlying issue, that I would like to simplify things. Here are the top 10 things to consider when buying medical malpractice insurance policy (in no particular order of importance):
- Company—While I just stated that these items are not in order of importance, I will make an exception with this consideration. Having a medical malpractice insurance policy does not do one any good if the malpractice insurance company might not be around long enough to help in the event of a claim. The following are all attributes to look at:
- Financial Solvency—There are countless factors to be considered when determining whether a company is financially healthy or not (revenue, surplus, etc.); however, our goal is to simplify. A straightforward rule to simplify the decision is to see if the insurance carrier holds an “A.M. Best Rating” of an A or higher. If the company does, one can generally feel very comfortable proceeding. If they do not, this is where it is important to dig a little deeper. It is not always a red flag if they do not have a high rating, as some companies might have great financials and just be too young of a company to garner an A.M. Best Rating yet.
- State-admitted carrier—Building on the above point, is the company a state-admitted carrier? This means they have filed their rates with the state and pay into the state guarantee fund (which will cover all pending open claims the insured is currently facing should the insurer become insolvent). Once again, just because a carrier is not state-admitted it does not mean the company is a bad option. Some non-admitted carriers have excellent financials (A ratings) and have held up in even the most volatile insurance market swings.
- Experience—How long has the company been insuring medical professionals? Do they focus on malpractice insurance or is it a generalist company that dabbles? Everything else being equal, an insurance company committed to medical professional liability is preferable.
- Limits of Liability—What is the single occurrence limit and what is the aggregate (annual) limit? These are the maximum amounts of indemnity that an insurance company will pay on one’s behalf for a given claim (occurrence/ incident) or series of claims (aggregate). Most states have a dominant limit that has traditionally been used; usually this dominant limit reflects the minimal amount of coverage that hospitals demand that attending physicians have in order to maintain hospital privileges. In the near future, we will be blogging on the decision of whether or not to purchase higher limits than what is typically required in one’s state.
- Defense costs (inclusive vs. exclusive)—What form of defense costs does a policy contain? Defense costs that are inclusive in the limits of liability are deducted from the total available limits of liability when they are utilized. Defense costs that are exclusive of the limits of liability do not have any impact on the total limit of liability should defense expenses accrue to defend a claim. With few exceptions, keeping defense costs outside the limits is the better type of policy due to overall higher dollar amounts of coverage in the event of a claim (and corresponding indemnity payout).
- Tail Provision—Does the policy offer some form of free tail once specific criteria have been met? The majority of state-admitted, A-rated carriers offer a free tail provision upon the following: typically 55 years of age, anywhere from 1–5 years with the company (varies), and retirement from the practice of medicine. Note the last criteria because, if the physician were to ever to come out of retirement, the free tail would be revoked. The cost of tail coverage, if one must purchase it, is typically anywhere from 200—250% of the cost of a mature claims-made policy. This is especially an important question to ask for an older physician approaching retirement. If there happened to be a company that could provide virtually an identical policy for a fraction of the cost as the incumbent carrier, but the physician is nearing retirement, he or she would have to factor purchasing tail coverage into the equation in case he or she does not practice for enough years to be granted free tail from the new company. In this situation, if they physician knew he or she could not continue practicing long enough (generally 5 years) to earn free tail, the best financial decision would be to stay with the current carrier, regardless of the fact that the annual premium might be higher.
- Endorsements/ Policy Extras—In addition to the free tail provision, which is usually “endorsed” onto the policy; are there any other endorsements? Other than tail, typical things to look/ask for include: cyber liability coverage (for patient records), regulatory coverage (Medicare and Medicaid), and administrative/ medical board defense coverage. These three additional features have become staples in state-admitted, high-quality policies. However, these may not always be needed, depending on the particular practice. For example, some physicians see little to no Medicare/ Medicaid patients in a given year or do not accept insurance for certain procedures; therefore, regulatory coverage might not be as critical to that particular physician’s practice. Other endorsements to look for include coverage for certain requested procedures (not otherwise covered), as well as locations that need to be added (typically after the policy is in place).
- Exclusions—Does the policy exclude any specific areas of practice? For example, some companies exclude prescribing HCG for medical weight loss, which means that the physician will NOT be covered should a claim arise relating to that particular procedure. Other exclusions that are typically always seen on policies (and, therefore, are expected) include any claims involving sexual harassment or violence.
- Claim Trigger—Is the claim trigger incident or demand? These are currently the only two types of claim triggers used. Incident triggers mean that a claim counts as reported to an insurer in either of the following scenarios: a written notice from a claimant, law office, etc., notifying of a claim action (or intent to pursue one) OR the insured physician preemptively reporting a situation/ incident that could ultimately result in a claim. The key with this claim trigger is that a physician can report a bad outcome if they feel that it is likely to result in a claim. On the other hand, with written demand, a physician does not have this ability and must wait for a written notice before the event is considered a claim and covered by the insurer.
- Deductible—Is there a deductible on the policy and, if so, what kind of deductible is it? The first kind of deductible is a “first-dollar deductible.” In this scenario, a provider must pay the deductible before a company will cover defense costs, expenses, or any other associated charge with the claim. This is the standard scenario. The second kind, however, is an “indemnity-only deductible.” Just as it sounds, this means a provider only pays the deductible amount if the verdict is unfavorable (or the case is settled). The provider would pay the first part of the indemnity, with the insurer paying all indemnity (up to policy limits) after the deductible. Court expenses and defense costs would not trigger the deductible in this scenario. Therefore, an indemnity-only deductible is the better option of the two; however, it would be ideal to find an insurer that does not mandate a deductible at all. Obtaining a deductible-free policy should be relatively easy for providers who do not have a history of malpractice claims.
- Consent to settle—How does the policy read pertaining to consent to settle? Generally, there are three different forms of consent to settle. First, and highly recommended, is full consent to settle. This means that an insurer or malpractice carrier cannot ever settle a claim without a provider’s consent to do so. They will typically offer advice and their recommendation, but the provider will always have the last word. Should the physician refuse to settle, the insurer has no choice but to carry on litigation and insure the provider up to his or her limits of liability. There is also limited consent to settle, otherwise commonly known as consent to settle with a “hammer clause.” This still gives the provider the final word on whether to settle a claim or not; however, should the insurer recommend the provider settle for a specific sum of money, the insurer will only be on the hook financially for what they recommended the provider settle for. Should the provider not heed the insurer’s recommendation and proceed with litigation, the provider will have to pay anything beyond the recommended settlement amount should the verdict rule in favor of the claimant. For example, let us assume a physician has policy limits of $1,000,000 per occurrence and $3,000,000 per aggregate and a patient files a claim against the physician. Let us also assume the malpractice carrier has reason to believe the provider cannot win in this particular case and they recommend a settlement of $200,000, but the physician refuses to settle. Should the litigation be carried out and the doctor found at fault, the doctor will be responsible for any indemnity over the recommended $200,000 settlement amount. Finally, there is no consent to settle. Just as it sounds, this means the provider has no control over whether the malpractice carrier settles a given claim or not.
- Price—Given the features examined in numbers one through nine (above), is the cost a competitive value? This is where utilizing a malpractice insurance broker can help, as gathering as many quotes as possible (from quality companies) can help provide an idea as to how competitive a given quote is. Brokers can also give advice on potential ways to decrease premium cost with a particular company; however, it could be at the expense of coverage features. For example, defense costs outside the limits will cost substantially more than having defense costs inside the limits. However, if a provider is carrying $1,000,000 per occurrence and $3,000,000 aggregate, defense costs inside the limits of liability might not be as important as the cost savings. It all comes back to the individual provider and his or her tolerance for risk is relative to premium price.
While there are always individual circumstances to consider when purchasing a medical malpractice policy, the list above is an excellent start to ensure that all critical policy features are considered and addressed. Like any purchase, it is vital to be an informed buyer. However, this is even more important in the medical malpractice insurance industry, which is subject to a rapidly changing healthcare environment.