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Malpractice Insurance

by Patrick C. Alguire, MD, FACP
Director, Education and Career Development, ACP

According to Patrick J Malloy (Planning Your Entry into Medical Practice, Manhasset; 1998), 97% of young physicians entering a new practice are offered malpractice insurance as an employment benefit, but nearly all of these policies are "claims-made" insurance. Understanding the difference between "claims-made" and "occurrence-made" insurance could mean the difference between adequate protection of your assets and personal bankruptcy.

The two basic types of malpractice insurance are "claims-made" and "occurrence-made." "Claims-made" insurance protects you from malpractice claims only if the company that insured you at the time of the alleged "occurrence" is the same company at the time the claim is filed in court. For example, if company A was the malpractice insurer on December 1, 1998, the date of an alleged malpractice incident, and is still your insurer on May 1, 1999 when the claim is filed, you are covered for the claim. However, if between December 1 and May 1 you have switched from insurance carrier A to insurance carrier B, you are not covered, unless you purchased an insurance "tail." The switch from one insurance carrier to another may have occurred because of a change in jobs, or practice location.

With "occurrence-made" insurance, the insurance coverage will be seamless, regardless of job or location changes. With this type of policy, any malpractice occurrence will be covered by the insurance carrier, provided it was the carrier at the time of the alleged event, regardless if it is the carrier at the time the claim is filed. For example, if you are covered by carrier A with "occurrence-made" insurance on December 1, 1998 when an alleged event occurs, but the claim is not filed until May 1, 1999, carrier A will provide the malpractice coverage, even if you are currently insured by carrier B.

The important message here is to recognize the type of insurance that is being offered. If "claims-made" insurance is the benefit, you must recognize that additional insurance coverage will be necessary if you ever leave the practice and acquire a new insurance carrier in the new practice setting. This is important because you remain liable for malpractice acts performed when part of the previous medical group. The additional coverage is known as "tail insurance." Tail insurance will provide malpractice protection for acts committed when covered by a "claims-made" policy by insurance carrier A, even if you are now covered by insurance carrier B. The cost of "tail insurance" is a one time assessment that can be as much as 1.5 to 2 times a typical annual malpractice insurance premium.

Who should pay for the "tail insurance" when leaving one practice to join another? About half the time it will be provided by the new practice as a benefit or inducement to join the new group. Occasionally, the "tail" will be provided by the old group, to ensure that adequate protection of their group assets exists if you are sued. This benefit may have certain stipulations associated with it, such as the obligation to leave the area and not be a direct competitor of the original practice.

Patrick Malloy offers other advice regarding malpractice insurance including:

• Check with insurance providers in your area to determine if the malpractice coverage is adequate
• Determine if the losses covered are "pure losses" or "ultimate net losses." Pure loss coverage is only for the amount awarded to the plaintiff, whereas ultimate net loss will cover attorneys' fees and costs as well.
• Know the extent of the insurer's obligation to defend you. Will you be reimbursed for lost wages when in court? What services will be provided for you as part of your defense?
• How soon must you report a liability claim to the carrier in order to still be eligible for full coverage?

Data on median professional liability premiums and coverage limits per case are available for general internal medicine, cardiology and gastroenterology physicians from Physician Marketplace Statistics 1997/1998 (Gonzalez ML, Zhang P (eds). American Medical Association, Chicago; 1998).

Liability Insurance Premiums (in thousands of dollars), 1996

Malpractice premiums do vary with the geographic location of the practice. Lowest premiums are found in the New England ( Massachusetts, Connecticut, New Hampshire, Rhode Island, Vermont) and East South Central ( Alabama, Kentucky, Mississippi, Tennessee) areas, whereas the highest premiums are found in the Middle Atlantic ( New Jersey, New York, Pennsylvania) and East North Central ( Illinois, Michigan, Ohio, Indiana, Wisconsin) areas.

Contrary to insurance premiums, insurance coverage has little variation for specialty area or geographic area of the country.

Professional Liability Insurance Coverage Limits per Case (in millions of dollars), 1996

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