Demystifying Risk: A Best Practices Guide to Medical Malpractice Coverage

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What exactly is “Medical Malpractice Coverage”?

Financial protection for the alleged acts, errors and/or omissions of physicians and surgeons, hospital facilities (HPL), and allied healthcare (e.g., nurses) professionals.

Even the best health care providers are subject to accusations of making a mistake. They all have had bad outcomes or may have been subject to an allegation of malpractice. It is so important in choosing the right malpractice coverage to protect your financial well-being, your reputation and your patients. In the unfortunate event of such an situation, you’ll want to ensure that your malpractice insurance is sufficient to compensate your patient and protect you and your practice. Being subject to a such a claim is stressful enough without having to wonder if your coverage is adequate or if you’ll be defended effectively. This is exactly why the time to understand your malpractice insurance coverage is before you need it.

When structuring and/or choosing a malpractice insurance policy, you should understand the answers to the following questions:

What do medical malpractice policies usually cover?

In the event of a lawsuit or claim against you, you are usually subject to a variety of allegations and expenses.

Indemnity exposure is the main purpose of malpractice coverage. Indemnity coverage is for the payment for damages suffered by a plaintiff (patient). The amount of money paid to the plaintiff as the result of a settlement or award is called an indemnity payment. Payments for indemnity settlements or awards are available up to the limits of liability within your policy. These limits may or may not be reduced by legal and other expenses.

Legal Defense costs are the other major exposure covered by your malpractice insurance policy. This coverage is responsible for providing you with a defense and obligated to pay for it. This is a significant part of your coverage as defending a malpractice claim can easily cost tens if not hundreds of thousands of dollars. Regardless of whether you’ve done anything wrong, the cost to defend a claim can be very significant. This exposure is usually the second largest expense for a malpractice insurer.

What do medical malpractice policies not cover?

Medical malpractice insurance policies usually contain very important exclusions. These exclusions are put in place to make sure the insurance carrier doesn’t pay for claims that originate from conduct or situations outside the intention of the policy terms and conditions. An insurance carrier will usually not defend and/or compensate on the insured’s behalf if the claim involves an applicable exclusion.

Common coverage exclusions include intentional acts, sexual misconduct and harassment, illegal activities such as theft, patient or hospital record alteration, and misrepresented or misconstrued information on an application. This point particularly emphasizes the importance of correctly filling out an insurance application and giving accurate information to carriers and carrier representatives. Also of note, there may several specified procedures and treatments written into a particular policy form of which will not be covered.

How much coverage should be obtained?

Determining your level of coverage is an important part of your decision to protect your patients, practice and personal assets.

Third party payer contracts also generally require malpractice insurance with certain limits of liability. Be sure to ask the provider relations department of any network in which you participate about their requirements. State statutes may also require coverage limit minimums as well as the obligations within obtaining and retaining hospital privileges.

It’s important to keep in mind that lower policy limits can affect the outcome of a case. Lawsuits are often a process of negotiation and compromise, and if your policy limits are inadequate to negotiate a settlement, they can become a barrier to reaching a successful outcome. Moreover, low policy limits can also expose your personal assets if a judgment exceeds policy limits. The participation in various state patient compensation funds may also dictate limit minimums and norms.

Obviously, the issue can be complex, so it is wise to consult with your accountant, lawyer, or another business advisor to assist in determining how much coverage you need. You should re-evaluate your malpractice coverage annually to make sure you have adequate protection as your practice grows or changes.

Malpractice insurance policies offer a wide range of limits for both single claims and total claims per year known as single claim limits and policy aggregate limits. Normally coverage limits consist of a maximum amount your policy will pay for any one claim and then a maximum amount your policy will pay during each annual policy period. The annual aggregate limit is usually three times the per claim limit. Consideration should also be given as to whether the claim expenses are within or in addition to the policy limits.

What is the difference between “claims made” and “occurrence” coverage?

There are two basic types of malpractice insurance: occurrence and claims-made. In recent times, malpractice insurance companies 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 terms and conditions and will provide you with a defense as previously described. The difference is how and when coverage is triggered.

An occurrence policy provides coverage for claims having alleged incidents that occur anytime during the policy period regardless of whether the policy has expired as long the alleged incident occurred while the policy was in force at the time of said incident. For example, 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.

Claims-made forms provide coverage against claims for alleged incidents that both occur and are reported during the coverage period AND policy period. The coverage period begins at what is called the retroactive date, or “retro” date. Claims-made coverage is triggered when: 1) The alleged injury occurs on or after the policy’s retro date and 2) 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. Extended reporting endorsements can usually be purchased under a claims made policy in a way converting this claims made form into an occurrence form for an additional premium.

What is a “consent to settle” clause within a policy?

A very critical characteristic of a malpractice insurance policy is whether it gives you the authority to settle or not settle a claim. Virtually all current carriers provide policies naming the insured who is authorized to give consent to settle. They are not all the same, however.

Some policies have clauses that limit an insured’s decision whether to settle a case. Two variations are as follows:

A ”hammer” or “modified hammer” clause may be within the policy wording. Should a policy contain a hammer clause, and during the claim the insured refuses to consent to any settlement recommended by the insurance carrier, the insured becomes responsible for any judgment in excess of the proposed settlement amount. A settlement may save the insurance carrier significant money by shortening the litigation process, but it forces insureds to make difficult decisions as to whether to continue fighting and prove their innocence. Insureds must therefore consider the impact on their own finances should they press on with the claim with a policy containing a hammer clause.

An arbitration clause is another provision found in medical malpractice liability policies that affect an insured’s consent to settle. If an insurance carrier deems an offer to settle a claim as proper and the insured is withholding consent, the insurance carrier can employ an arbitrator to decide if consent is being unreasonably withheld. Should the arbitrator decide that the insured is being unreasonable in withholding his or her consent, the insurance carrier can proceed to settle the case without the insured’s consent. This situation may impact your reputation and profession, so it is important that you take these policy terms and conditions into account when reviewing your coverage options.

Should my carrier be specific to our specialty or diverse?

Medical malpractice carriers are usually either specialty specific or broad in professional clientele. They can be locally focused, regional or national. The pros and cons of each are very particular with many considerations. Some of these are:

  • Specialty specific risk management and loss control concentration;
  • Geographic (state) familiarity and expertise;
  • Direct policy providers or;
  • Professional independent network of broker/agents

There are no correct answers here as every situation and provider concerns should be tailored for and in the interest of the insured.

What’s the right premium?

When looking at premium, there are several things to consider such as the value you will receive for your policy dollar.

Rates vary widely from specialty to specialty and state to state. Surgical rates are higher than non-invasive rates. Certain ancillary rates are vastly different than others.

State premium rates can differ even more than specialty specific rates. For instance, the five states which have had the highest average claim payouts per health care provider have been more than five times the lowest state payout averages. The highest states have been NY, PA, NJ MA and CT. The lowest states have been TX, ND, WI, MS and IN. (Per person per state as provided by the National Practioner Data Bank, US Dept. of Health and Human Services since 1990).

Accordingly, geographic premium rates have closely followed the above loss patterns and can be very complicated fluctuating. To obtain the fairest and most value obtaining medical malpractice coverage, considering all of these variables, health care providers should always seek the most knowledgeable and professional assistance you can find.

On-going customer service is also vital. Part of what you are paying for in a malpractice policy is service. It can make your life easier to call an expert, whether you’re calling about your policy, a claim or simply have general questions.

About The Author

Russ Madio
Advisor
HealthCare Risk Advisors, LCC

Russ Madio is a trusted advisor and consultant with HealthCare Risk Advisors, LCC. Healthcare Risk Advisors is a risk management and consulting company designed to deliver innovative risk placement and risk transfer solutions focusing on the healthcare practices industry.