Professional
liability insurance is available in two forms, “occurrence” and “claims
made.”
An occurrence
policy covers any incident that occurs during the period the policy is in
force, regardless of when the claim is filed. For instance, let us assume
that you purchase an occurrence policy in 2012 and keep it until 2015
when, for some reason, you do not renew it. In 2017, you are sued for an
incident that occurred years earlier, when the policy was in effect. That
policy would still cover you, even though the claim was filed long after
the policy was canceled.
The advantage of
this type of policy is that it requires no “tail coverage.”
The disadvantage is
that coverage limits which were sufficient when you bought the policy may
be inadequate years later, when the claim is filed. You can’t increase
the limits of your occurrence policy after you have canceled it.
A claims-made
policy, the most common type, is quite different. It covers you only
for claims that are filed during the period the policy is in effect. The
advantages of a claims-made policy are that first-year premiums are
generally low, since claims are seldom filed immediately, and the limits
of the coverage can be adjusted in accordance with current legal awards
and judgments.
The disadvantage of
a claims-made policy is that, should you drop the policy, you must
purchase “tail insurance” which covers you retroactively. Otherwise,
you would have no coverage for incidents which occurred during the life of
the policy but were not reported until after the policy was canceled.
Tail coverage
is sometimes included in your contract, because the employer - who would usually be named in any lawsuit, along with you, and who probably has
deeper pockets - wishes to avoid the financial liability inherent in an
adverse judgment. On the other hand, some employers will decline to pay
for your tail coverage, figuring that to do so subsidizes your leaving.
Still other employers may split the cost of tail coverage with you,
perhaps on a 50/50 basis. Some may pay for the tail coverage in case of
your death, disability or firing, but require that you pay your own tail
coverage if you quit. Tail coverage can be very expensive, costing double
your last year’s premium, or even more.
Nose coverage
is sometimes an alternative for a departing physician. In that case, your
new insurance company agrees to cover prior acts as part of the policy.
There is an additional fee, of course, but it is usually less than the
cost of tail coverage.
You will probably
have no choice regarding the type of insurance you are offered. You will
be insured by the same type of policy and to the same limits as others in
the practice.
To prevent
misunderstanding, your contract should specify the type of insurance you
will have and the way in which tail coverage will be handled.
