Yankees or the Red Sox, Ruth or Bonds, it all depends on your taste and preferences. A sea of ink has been expended in this debate over which policy form is better. Yet, while the policy form is an important consideration, it can’t be separated from the context of the insurance contract.
Pointer #1: Don’t use the policy form as a litmus test for shopping the market.
Health care professionals have a choice between claims-made or occurrence forms in the current marketplace. However, not every malpractice program advertised by occurrence is really a true occurrence form. Believe it or not, there are impostors out there!
A pure occurrence product means that you are insured for covered actions during that policy period.
A claims-made policy may work just like an occurrence policy. You are insured for covered actions during the policy period forever if you buy or are given the “unlimited tail” at the end of the policy period. Some carriers offer a claims made policy with a pre-paid “unlimited tail,” meaning that the cost of the “tail” is included in your annual premium. There is no “tail” to purchase at the end of the policy because you have been pre-paying it all along.
Pointer #2: Look at the specimen policy. If it is claims made, it has to be clearly labeled — “This is a claims-made policy.” A claims-made policy with a pre-paid tail IS NOT an occurrence policy.
Pointer #3: If you are approaching retirement, a claims-made policy with a “no cost” tail upon retirement may be a better bargain than a claims-made policy with a prepaid tail.
Depending on the circumstances, you may never need to buy a “tail” for your professional liability policy. Your state insurance department requires that “tails” are offered with claims-made policies, so your right to buy a “tail” is not going to disappear.
Pointer #4: In general, a pure occurrence product should cost more than a claims-made product.It should cost more because you are buying more liability coverage.
First, check to see if the policy really is occurrence rather than claims-made with a pre-paid tail. Then, check what the policy covers and what it excludes. What looks like a bargain may quickly lose its luster when you read the fine print. Pure occurrence products are available, but the real thing doesn’t come at bargain basement prices.
The real competition among insurance carriers has been in the claims-made arena. There has been some serious rate and coverage competition in progress during the 1990′s.
The availability of unlimited tails makes a claims-made an attractive insurance option for doctors; in fact over 85% of all doctors are insured under this policy form.
Plus, claims-made premium rates should offer some real premium savings over a comparable occurrence product.
Remember, contrary to popular belief, doctors aren’t sued very often, and when sued, the vast majority claims cost well under $100,000. Few doctors are sued more than once in their lifetime, OB’s to the contrary. Given these trends, stretching your liability limits over a number of years with a claims-made program is not particularly risky.
Occurrence versus Claims-made — that’s your choice. Either form can be the perfect fit for you depending on the actual coverage it provides you.
Most insurance companies offering claims-made policies also offer “prior acts” coverage when you purchase malpractice insurance for the first time.
Here’s an example:
An OBGYN is in her third year of claims coverage and elects to switch her malpractice insurer and the new insurance company offers prior acts coverage.
What happens is the OBGYN receives a retroactive date matching the original inception date of the malpractice insurance policy date of coverage with the expiring insurer.
In return the OBGYN pays the new medical malpractice insurer for the third year claims made rate. Now, no tail coverage is needed at time.
A policy providing coverage that triggers when a claim is reported during a valid policy period. The medical incident must have occurred after the retroactive date and before coverage expired. If you leave a claims-made policy, your retroactive date must be transferred to your new policy or you must arrange for extended reporting coverage.
An occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when a claim is filed. An occurrence policy will respond to claims that come in – even after the policy has been canceled – so long as the incident occurred during the period that coverage was in force.
Modified Claims-Made triggers coverage like a claims-made policy but prepays extended reporting coverage. You don’t have to purchase a “tail” if one is required for your circumstances.
When a physician decides to stop practicing medicine in a claims-made policy, or switches to an occurrence (or occurrence type) policy form, they are required to purchase an extended reporting endorsement known as the tail or tail coverage. If you no longer have an active policy, you would be liable for any claims that are presented today for incidences that happened when you had a claims-made policy. Therefore, the tail coverage provides you with permanent protection for those previous years of exposure from your retroactive date to your date of cancellation. Most carriers will offer free tail provisions if physicians meet certain criteria, such as retirement, death, or permanent disability. When necessary, tail coverage is purchased from an insured’s previous claims-made carrier and the cost is based upon a filed factor applied to the prior year’s premium.
Under a claims-made policy, coverage provides insurance for claims arising from incidents that occurred while a previous claims-made policy or policies were in effect, but that were not reported until that policy (or the last in a succession of policies) was terminated. With retroactive coverage, the new policy covers such claims. With such coverage, purchase of tail coverage from the previous carrier is not necessary.
This is the maximum amount a carrier will pay for all claims that occurred and were reported during a given policy period. Therefore, if your policy limits were $1M / $3M, you have up to $1M per claim and up to $3M for all claims reported in that policy period.
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