Claims-Made Vs. Occurrence Insurance
One of the most confusing aspects of medical malpractice insurance is the concept of a "claims-made" policy, and how it differs from a traditional "occurrence" policy.
Occurrence Policies: Occurrence policies, such as the policies you may carry on your car or your home, assign a claim to the appropriate policy based on the date that the incident occurred. For instance, let's say your occurrence policy covers the dates from January 1, 2010, until December 31, 2010. On January 1, 2011, you begin a new occurrence policy period. If you have an incident on December 22, 2010, but do not file a claim until January 6, 2011, the incident would be covered under the 2010 policy, which is when the incident occurred.
Claims-Made Policies: Insurance companies struggled to manage Occurrence malpractice policies, because there is often a long statute of limitations. Unable to close the books on policy years, carriers developed claims-made policies to allow better reporting and accounting. Claims-made policies, by contrast, have a standard policy period, but also include a retroactive date. Because this type of policy period looks at the date of the claim – not the date of the incident – insurance carriers use the retroactive date to limit the historical period of time for which they are liable.
- Policy Period: 7/1/2010 – 7/1/2011
- Retroactive Date: 1/1/2006
- Incident Date 8/31/2004
If the doctor attempted to file a claim for the 8/31/2004 incident in September of 2010, the claim would be denied because the incident occurred prior to the retroactive date, even though the claim occurred during the policy period.
While there are some benefits to carrying a claims-made policy, extra care must be taken to ensure that there are no gaps in policy coverage. A broker like Gallagher can help you evaluate your exposure and select the type of coverage on your policy to ensure that you have the proper coverage at all times. While assisting you to find the right coverage, your Gallagher broker can help you understand and consider the following items:
Prior Acts Coverage (aka Nose Coverage)
When switching to a new insurance company under a claims-made policy, you can often request prior acts coverage. This simply means that you are asking them to honor the retroactive date shown on your current policy. Depending on the situation, some insurance companies may be hesitant to agree because the physician has seen many patients since that retroactive date, and one could turn into a claim.
Extended Reporting Endorsement (aka Tail Coverage)
This is a unique characteristic of a claims-made policy. Most insurance companies offer a tail to physicians at the time they leave the company or cancel their policy. This endorsement states that the physician has additional time after the policy period ends to report claims. Read the policy language to see whether this additional time is unlimited or whether there is a set number of years in which claims can be reported.
Some reasons physicians buy tail coverage are:
- They are retiring from medicine
- A new carrier will not pick up prior acts coverage
- They switch from a Claims-made policy to an Occurrence policy
Gaps in Coverage
All physicians should make sure that they do not have any gaps in their coverage. Gaps generally occur when a physician's retroactive date no longer matches his original retroactive date, and there is no tail policy that covers this period of time.
Until the physician is labeled as "mature" (this designation varies by carrier; some require the physician to have practiced for at least four years while others require at least eight years), claims-made policies are much cheaper than occurrence policies. Once the physician's policy has matured, claims-made and occurrence will have about the same premium.
With an occurrence policy, the amount of coverage depends upon the policy in the year of the occurrence. Let's say you had an occurrence policy in 2005 with limits of $200,000/$600,000. This means that you have $200,000 of coverage per incident and up to $600,000 of coverage in total. You currently have an occurrence policy with limits of $1,000,000/$3,000,000. If you just received a claim for an incident that occurred in 2005, it would be covered under the 2005 policy limits of $200,000/$600,000. If your current policy is a claims-made policy, that claim would be covered up to your current limits of $1,000,000/$3,000,000.
Choice of Insurers
Insurance is a business, and like any business, there is the potential that an insurance company may leave the market. When this happens, you must find a new carrier for your claims-made policy and will either need to obtain prior acts coverage or purchase tail coverage. This can be very costly. However, if the company carrying your occurrence policy goes out of business, you may be left with no coverage if a claim is made for an incident which occurred on that policy. Some states have guarantee funds which can help cover those claims under certain circumstances.
Occurrence policies may not be available in your state or specialty. Claims-made coverage is more readily available. In fact, many carriers only offer claims-made policies.