The Executive Suite: 6 Tips for medical malpractice protection

Medical malpractice insurance is one of the greatest expenses physicians face during their careers. A primary care doctor can expect to pay hundreds of thousands of dollars in premiums over the decades.

But knowing what to look for in a policy is a mystery for many physicians, as well as a time-consuming chore that rarely gets the attention it deserves. And buying the wrong type or incorrect amount of insurance-or buying it from the wrong carrier-can be extremely costly.

Physicians who take the time to understand how to buy malpractice insurance will not only save money, but ensure that they’ve got the right type and amount of liability coverage.

Types of insurance

Policies typically cover expenses incurred while defending and settling malpractice suits. These can include attorney fees, medical damages, arbitration and settlement costs, court costs, and punitive and compensatory damages. Liabilities incurred from criminal acts or sexual misconduct usually are not covered.

There are two basic types of malpractice insurance: claims-made and occurrence. A claims-made policy provides coverage only if the policy is in effect both when the incident took place and when a lawsuit is filed. Occurrence policies cover any claim for an event that took place during the period the policy was in effect, even if the claim is filed after the policy lapses.

Because a claim can be filed years after an event and after a claims-made policy expires, these policies often include a “tail” that extends coverage for a set number of years beyond the expiration date. If it’s not part of the original policy, tail coverage can be bought separately.

Tail coverage offers protection when a physician is changing jobs or carriers or retiring. Sometimes, the cost of tail coverage will be covered by a previous employer to protect itself or can be negotiated with a new employer. Occurrence policies generally don’t require tail coverage, but are not available in all states.

If buying a claims-made policy, be sure that the beginning date for coverage is accurate and matches the date on the prior policy to ensure there are no coverage gaps between policies, says Jennifer Richard, ARM, RPLU, vice president of sales and marketing, Professional Risk Associates., a Virginia-based malpractice insurance broker.

“Physicians should ensure all services they are providing have been fully disclosed and reviewed by their agent and underwriter to ensure there are no gaps in coverage in their practice,” she says.

“Additionally, it’s important they review all other professional liability exposures within cyber, regulatory, directors and officers, and employment practices liability. There are situations where these coverages could overlap, or come into play, based on the risk exposure of the practice.”

How much coverage?

The appropriate amount of coverage can vary by state, specialty, and contractual arrangements with hospitals and other healthcare organizations, says Richard. Some states require providers have minimum levels of coverage, but a physician can still need more.

In general, carriers’ standard coverage limits are $1 million per claim and $3 million aggregate, which is the most the policy will pay in a year for all claims. However, certain states require different limits based on medical malpractice caps on damages. States with more litigious climates might require more.

Richard cites the example of Virginia, which does not have a statutory requirement for medical liability insurance. However, the state has a medical malpractice cap of $2.35 million (which eventually will increase to $3 million). For that reason, hospitals require physicians to carry at least that amount with an aggregate that is three times higher ($2.35 million per claim/$7.05 million aggregate).

Some states have patient compensation or catastrophe loss funds, which provide an additional layer of coverage over the primary policy limits, says Eric Anderson, vice president of marketing and communications for Medical Professional Liability Associates, an industry group.

Providers pay into these state-run funds through a surcharge on medical malpractice insurance premiums. If a lawsuit is filed and found to be legitimate, malpractice insurance will cover the injured patient’s costs to a limit set by the state. The rest is paid by the fund.

What to look for in a carrier

Carriers must be licensed in each state in which they operate and follow that state’s rules and regulations. While many carriers operate in multiple states, not all do. Patrick Lawn, owner of Physicians Insurance Consultants in Pennsylvania, estimates that there is an average of five to six carriers in each state.

Price is an important factor, but it shouldn’t be the only one, says Lawn, adding that shopping on price alone can lead to hiring an unreliable or financially precarious carrier.

“You can’t just jump (carriers) for a penny; you’ve got to be able to rely on the carrier,” Lawn says.

Make sure the policy has a consent to settle clause, which prevents the insurer from settling a claim without permission of the insured doctor, Lawn advises.

The best carriers will act as resources for their clients, offering advice on how to avoid claims and other matters, says Kenneth Hertz, FACMPE, principal consultant at Medical Group Management Association (MGMA). “Partner with them as a resource. They’re the experts. They’re only too happy to help and they can help you stay out of trouble. It’s to their benefit as well,” he says.

He recommends screening potential carriers on a variety of criteria, in addition to price:

Ask medical colleagues and people in the insurance industry about the carrier’s reputation. How responsive is it? What’s its history on settling claims?
Check the carrier’s financial security on A.M. Best, which reports on the financial stability of insurers and rates individual companies. Look for a carrier with an “A, Excellent” rating or better and a “Stable” outlook.
How long has the carrier been in business? Does it specialize in certain fields, such as obstetrics?
Does the carrier have a local office or counsel? Is it willing to visit the practice and become familiar with the caregivers?

Should you use a broker?

Virginia Kladder, MD, considers herself fortunate that she’s never had to shop for malpractice insurance. “If I had to go out on my own there is no way, as a physician, I could figure it out,” she says.