A Guide to Purchasing Medical Malpractice Insurance
No one wants to think about medical malpractice insurance. It can be overwhelming. If you are a physician or administrator who’s pressed for time and resources, it can be tough to discern exactly what your medical malpractice coverage should contain, much less what type of policy to purchase.
However, lately, it’s becoming a much more interesting topic of discussion. Physicians are finally sitting down and comparing rates. When they do, some are realizing they’ve lost hundreds, even thousands of dollars in premium paid per year. Others realize they’ve been taken advantage of through various clauses in their policy, forcing them to settle when they perhaps could have won their case. These are completely avoidable mistakes.
In 2005, for example, a self-proclaimed medical malpractice insurance company was using multiple names and deceptive tactics in order to defraud doctors nationwide. The unlicensed company scammed several unsuspecting practices, and the physicians that submitted claims never heard back. The company, to date, has not been caught.
This is a rare case, however, it’s not just fraudulent companies that doctors need to look out for. Legitimate, well-meaning carriers are charging their insureds comparatively higher premiums, which can be inflated by operating expenses and outdated processes. This, paired with confusing policy language, can further complicate the decision-making process.
Today, the majority of carriers are remaining flat, if not decreasing prices. It’s a buyers market, and insureds don’t have to settle for non-competitive rates.
It’s hard to find the time to compare carriers and their policies, but it’s worth it to shop around.
Medical malpractice insurance is also known as medical professional liability insurance, but regardless of what you call it, there are several features you absolutely must educate yourself on prior to purchasing a policy.
Knowing what to look for and what questions to ask will significantly improve your chances of partnering with a reliable, financially stable carrier. It will allow you to arm yourself and your practice with superior protection in the event of a claim, and it could present an opportunity to save yourself thousands of dollars on premium a year. Below is a list of items to look for in a medical malpractice insurance carrier, including must-have policy features.
1) Admitted Carriers vs. Non-Admitted Carriers
An admitted carrier is an insurance company that is both licensed and regulated by a State Department of Insurance. Since the company is an “admitted” carrier, its insureds are protected by the admitting state’s guarantee fund. If an admitted insurance company were to go bankrupt, the guarantee fund provides certain protection for the affected insureds.
Admitted carriers will be listed with your State’s Department of Insurance, and can be easily verified by contacting the department via phone call or email. Non-admitted carriers are not safeguarded by the admitting state’s guarantee fund, and do not offer this added layer of protection. However, non-admitted carriers do perform an important purpose, as some provide a valuable option for those requiring Excess and Surplus Lines.
An Excess and Surplus Line typically serves physicians who are unable to obtain full coverage from an admitted carrier. Reasons for needing to obtain coverage in an E&S market could involve a physician’s claims history, licensing issues, or a concern with a procedure a physician performs. Such carriers are approved by, but not regulated by a State’s Department of Insurance, and therefore do not offer the added protection of a guarantee fund. Physicians should avoid Excess and Surplus lines that have not been approved by a state Department of Insurance.
2) Financial Stability
It’s imperative to take this into consideration when evaluating a potential carrier. In fact, it’s downright irresponsible if you choose to overlook this detail.
Physicians typically analyze insurance companies based on A.M. Best Company’s ratings, and its ratings are considered an industry benchmark. While A.M. Best Company rates some of the largest carriers on the market, a sizeable market of carriers are rated by Demotech, a leading provider of Financial StabilityRatings® for younger, small and mid-sized carriers.
When comparing policies, physicians should seek out a carrier with an A-Rating – one that has been evaluated by one of the companies noted above. Also, look at the company’s reinsurers. Support from A-Rated reinsurers demonstrates a successful track record of balancing risks, a strong financial past, and most importantly, a solid financial future. Selecting a carrier with reputable reinsurers is undoubtedly a smart, practical choice.
3) Consent-to-Settle Clause
A consent-to-settle clause is a condition in which a carrier cannot settle a claim against an insured without the insured’s consent. For example, if your policy didn’t contain a consent to settle clause, your carrier would legally be allowed to settle a suit without merit simply because the cost of the defense might amount to more than the sum of the settlement.
A settlement could adversely affect a physician’s reputation, insurance status, ability to participate in a managed-care group, and/or application for hospital privileges. If an insurance carrier is willing to settle a claim simply to save money on their end, they are not acting in an insured’s best interest.
While most states allow for consent-to-settle, others, such as Maryland, do not. Ask your carrier or agent up-front if the policy contains this clause, and educate yourself on your state’s policies.
4) Hammer Clause
In order to counterbalance an insured’s right to have the final say on a settlement, insurance policies may include a “hammer clause.” Hammer clauses act to force insureds to comply with a carrier’s decision to settle a case, rather than go to trial. This clause informs the insured that if the insured does not agree to settle, the insured is responsible for any judgment won by the plaintiff, along with legal fees, that are above the amount that could have been settled.
For example, let’s say a physician is involved in a $2 million-dollar negligence suit. The physician knows the claim is non-meritorious, and he receives an offer to settle for $200,000. The physician doesn’t want settle the case, nor does he want it on his record. He wants to fight the claim, and it could be in his best interest to do so. However, his insurer wants him to settle since it could be a long and costly battle.
If the physician’s medical malpractice insurance policy doesn’t have a hammer clause, he has the absolute right to refuse to settle. If he opts to go to trial, his insurer has no choice but to respect that right and continue to defend him.
If his policy does contain a hammer clause, the physician still has the right to refuse to settle. However, if he loses at trial, it could be quite costly on his behalf. With a hammer clause, the insurer can cap the amount of benefits he will receive at the original, offered settlement amount ($200,000) and any legal fees incurred up to the point he refused to settle (hypothetically, $20,000). This means that if the physician receives a judgment of $800,000, and if he incurs an additional $15,000 worth of additional legal fees during the trial, then the physician is responsible for paying his insurance carrier a sum of $595,000.
Don’t be fooled. After you determine whether or not a policy contains a consent-to-settle clause, check and see if it also contains a hammer clause. Choosing an insurance carrier with your best interests in mind really can help you save in the long run.
5) Extended Reporting Period (Tail) and Prior Acts (Retroactive Period) Coverage
An extended reporting period, also called “tail” coverage, is an endorsement offered by a physician’s current carrier. It allows the insured physician to extend his or her coverage for a specified time period after the cancellation or termination of a claims-made policy. It applies to any claims that occur after the retroactive date and prior to the expiration date.
Tail coverage is offered at the termination of a policy, except when a policy is cancelled for non- payment. Tail costs are typically 150% to 250% of the annual policy premium, however, some carriers offer earned tail coverage upon retirement. This depends on the length of time the physician was insured by the carrier.
Prior acts coverage, aka retroactive period, allows a physician to transfer his or her existing retroactive date to a new insurance carrier. The retroactive date is the earliest date for which a physician is covered under the policy.
Sometimes, physicians can decide between purchasing an extended reporting period from a previous carrier, or retroactive period coverage from a new carrier. Other times, the decision is out of their control due to employment contracts or coverage issues. Either way, be sure to ask a potential carrier about extended reporting pricing, and carefully read through all endorsements.
6) Locum Tenens Coverage
Locum Tenens coverage allows a physician to temporarily serve as a substitute for an insured physician. For example, at Capson, our locum tenens coverage will allow a physician to be replaced by another equally qualified physician up to 30 days each policy period.
In 2006, the Society of Hospital Medicine held a survey on the challenges administrators and physicians faced. Out of this group, 42% of the respondents identified work hours/work-life balance as their main challenge. For small or mid-sized practices with fewer resources, locum tenens coverage can provide a solution to this problem. Taking advantage of this coverage helps decrease workloads for full-time physicians in addition to improving practice profitability and overall physician morale.
7) Regulatory Defense and Cyber Liability Endorsements
While this is a standard policy addition these days, it’s important to verify that it is included. This coverage is provided for regulatory proceedings brought against the physician by government entities for the enforcement of the Occupational Safety and Health Administration (OSHA), Emergency Medical Treatment and Labor Act (EMTALA), Clinical Laboratory Improvement Amendments (CLIA), Health Insurance Portability and Accountability Act (HIPAA), and Stark Laws. It should also be extended for Americans with Disabilities Act (ADA) proceedings and billing errors proceedings, including Recovery Audit Contractor (RAC) audits brought by government entities and commercial payers, if allowable in each state
Cyber liability coverage should offer protection for network security and privacy related exposures faced by physicians. Patient notification and credit monitoring costs, network security and privacy insurance, regulatory coverage, and data recovery costs should be included in this coverage.
8) Defense Costs “Inside” vs. “Outside” Policy Limits
Last but not least, take note that defense costs are paid and may alter your coverage. Are they “inside” or “outside” the policy limits? Ideally, you want to select a policy with defense costs “outside” the limits of liability. This means that your defense costs will not erode your limits of liability that are there to protect you for an indemnity payment. Failure to understand your limit structure could result in a significant loss.
Does your medical malpractice carrier have your best interests in mind?
As a leading provider of medical malpractice insurance, it’s our hope that reading this guide will help you find and partner with the right carrier for your needs. By comparing carriers and following the advice in this guide, you can find an insurance provider with your best interests in mind.
Capson is a national, A-Rated medical malpractice insurance carrier that believes in treating physicians fairly. Our dedication to providing healthcare professionals with extraordinary protection and service drives us to equip the physician community with the latest educational resources, risk mitigation techniques, and industry news.
Two minutes could lead to significant savings.
It only takes two minutes to see how much you could save. You can get approved and covered in less than two days. Click here to fill out our quote form.
Download a printable version of this checklist by clicking the button below!