What types of policies are available?
There are two basic types of malpractice insurance: occurrence and claims-made. Ideally, your malpractice insurance company should offer both occurrence and claims-made policies, so you can decide which is best for your individual circumstances.
It is important to understand that both types of policies have the same coverage and both will provide you with a defense. What differs between the two is how and when the coverage triggers.
An occurrence policy provides coverage against claims for alleged incidents that occur anytime during the policy period. Even if the policy has expired or been canceled, if the alleged incident occurred while the policy was in force, the coverage is there.
In other words, if an act or omission allegedly causing an injury occurs today, then the occurrence policy that's in effect today would cover you against a malpractice claim, regardless of when that claim is made.
Why is this important? Most claims are filed relatively soon after the treatment or incident in question, but some lawsuits have been filed and successfully litigated for incidents that took place many years earlier. This is particularly relevant when minors are involved or when the alleged injury doesn't manifest itself until much later.
Claims-made coverage, on the other hand, provides coverage against claims for alleged incidents that both occur and are reported during the policy period. The first day claims-made coverage begins is called the retroactive date, or "retro" date.
Claims-made coverage is triggered when:
- The alleged injury occurs on or after the policy's retro date.
- A written claim is made and reported during the current policy period or within the term of the policy or any extended reporting period following the current policy period, generally 60 days following termination of the policy.
Occurrence vs. Claims-made Premiums
Along with understanding the difference in the coverage triggers of occurrence and claims-made policies, it is important to understand the difference in the premiums.
Occurrence policies offer a steady base premium. The base premium does not increase as the policy matures.The claims-made policy offers a lower premium during early years of the policy. The premium steps up each year until reaching maturity in year five of the policy. While this saves some money in your early years of practice, potential coverage gaps can occur, and you need to work closely with your insurance company at the time of cancellation to ensure all potential gaps are identified.
Figure 2 (see below) maps potential gaps in coverage when moving from one claims-made policy to another.
Avoiding Gaps in Coverage with Claims-made Coverage
It is important to make sure that a gap in your malpractice coverage doesn't occur. A gap in coverage can result in a number of ways. If the retroactive date (coverage date) of a claims-made policy changes, a gap in coverage may result. The timeline (Figure 2) shows what happened when a doctor switched from a claims-made policy with Company A (Policy Period 1) to a claims-made policy with Company B (Policy Period 2) and did not purchase tail coverage from Company A or prior acts coverage from Company B. This switch resulted in a change to the doctor's retro date. This same scenario would apply if the coverage was completely canceled.
As shown in Figure 2, the injury occurred during Policy Period 1. Because the doctor changed coverage and did not purchase tail coverage from Company A or prior acts coverage from Company B, he has a new retro date. Consequently, an injury that occurred 7/1/10 but was not submitted by the patient until 7/1/11 would not be covered by either Company A or Company B.
This gap represents a significant risk to the doctor and his/her patients. To avoid a gap in coverage when canceling your policy or switching insurance companies, you need to purchase either tail coverage from your former insurer or prior acts coverage from your prospective insurer. Without this additional coverage, there is no coverage for the entire period of time the previous policy was in place.
When purchasing tail coverage, you need to understand the terms of its coverage. Typically, tail coverage must be purchased within a certain period of time following cancellation. It is a one-time purchase, does not expire and cannot be canceled by you or the insurance company that issues it. Generally, tail coverage may not be purchased if the policy was canceled for non-payment of premium.