The Medical Legal Committee’s all-College survey (ACEP News April 2012) indicated that very few members had obtained or read their liability policies, which is worrisome considering the medical-legal perils. Professional liability insurance is like a set of jumper cables: it’s best to understand the basics before something goes wrong. Lack of knowledge of certain terms and restrictions in professional liability policies can leave practitioners at serious risk, so it behooves the insured to understand the rights and responsibilities set out under a malpractice policy before that policy is put to the test. To answer those need-to-know questions, an overview of policy structure is a helpful starting point.

Occurrence Coverage

If an event of alleged malpractice occurs during the policy period, and that event gives rise to a claim, an occurrence policy will cover that claim regardless of when the claim is reported. Because claims can be made years after termination of coverage, occurrence policies are relatively expensive and have become a less common form of medical professional liability coverage.

Claims-Made Coverage

Claims-made policies also cover claims resulting from events that occur during the policy period, but only if a predefined trigger occurs; usually that the event is reported or a claim is made before the end of the policy period. If a claims-made policy is terminated (as happens when a provider relocates), the provider will not be covered for claims that occur after the policy ends unless other arrangements, such as “tail” or “nose” coverage, are made. For example, when Dr. Smith moves to a new ED, a change of malpractice carrier accompanies the new position. When Dr. Smith then receives notice of a claim arising from events that occurred at his former position, neither of his insurance carriers will defend the claim unless Dr. Smith has purchased supplemental coverage for his claims-made policy.

“Tail” and “Nose” Coverage

“Tail” coverage provides an additional insured period after a claims-made policy ends. Tail coverage can cost as much as 3 times the most recent annual premium unless it has been contractually incorporated in a modified claims-made policy. Alternatively, a provider may purchase “prior acts” or “nose” coverage, where the subsequent insurer will cover claims that fall into the coverage gap.

Limits and Loopholes

In addition to the claims-made coverage gap, there are other vulnerabilities inherent in professional liability policies with which an insured provider must be familiar. For instance, it is not safe to presume that merely because an event occurs during the course of ED duty that it will be insured: EMTALA violations, non-medical negligence, criminal actions, and state license action defenses are typically not covered, though this varies with the carrier and the coverage purchased. Furthermore, other course-of-duty actions such as writing “bridging” orders, covering floor codes, performing administrative duties, and engaging in medical volunteerism may not be covered unless specifically included in the contract. Additionally, the standard limits on medical malpractice policies are $1 million per occurrence and $3 million total for one policy period. Judgments that exceed such policy limits are not covered. Finally, some policies have an indemnification clause that grants the contracting health-care entity the right to directly recover its losses from an at-fault physician. These potential policy limitations are just a few of the reasons that it is imperative to understand (and confirm in writing) the extent of one’s coverage before that coverage is needed.

Claim Management Rights

One critical part of a professional liability policy that is often poorly understood by physicians is the degree of control that an insured party has over the decision to defend or settle a claim. (Half of the half of our survey respondents who had read their policies were aware of this provision–so 75% were not). Although the insurer is generally required to act in good faith when settling a claim on behalf of a physician, many policies deprive the insured practitioner of the decision as to whether to settle or pursue a case. Though some policies do grant the insured provider the power to choose litigation over settlement, rejecting an insurer’s recommendation to accept a negotiated settlement can be risky for the provider. For instance, some policies may include a “hammer clause” that requires the practitioner to be personally liable for any jury award that exceeds a settlement amount that has been rejected by the provider.

Responsibilities

Another key aspect of coverage applicability is event reporting. In many cases, the insured provider is required to notify the insurer if an event occurs that may lead to a claim. Additionally, if a suit is filed, the insured will likely be required to cooperate with the insurer’s defense as a prerequisite to coverage. Failure to meet either of the above responsibilities may lead to denial of coverage despite an otherwise active policy.

Conclusion

Professional liability insurance is both crucial and complex. Policy structure and limitations, as well as the insured’s rights and responsibilities, play critical roles in coverage effectiveness. It is important that each provider be familiar with the details of his or her policy, preferably at the time of contracting for coverage, in order to minimize vulnerabilities. Because individual policies and state laws vary, experienced local counsel is the recommended source for information.