Claims-Made Policies

Occurrence Policies

Tail Coverage

Prior Acts (“Nose”) Coverage

Retro-Active Date

Consent-To-Settle Protection

Admitted Carriers vs. Non-Admitted Carriers

Claims-made policies cover policyholders for alleged acts of malpractice that take place and are reported to the carrier during the policy period. Claims-Made policy premiums are relatively low for the first few years because there is often a significant lag between when a treatment is administered and the filing of a claim resulting from that treatment. As a result, Claims-Made premiums are structured to increase each year that the coverage is in continuous force until the risk presented approximates a "mature" risk (usually occurring in years 5 - 6 for individual physicians).

Premiums for Claims-Made policies are typically based on past and current experience, and physicians can increase liability limits when necessary. Policyholders therefore do not pay premiums for future liability that is difficult to project. Since Claims-Made policies only cover claims reported, and arising from, incidents that occurred while that policy is in effect, policyholders must be careful when switching carriers or otherwise terminating coverage. Such transitions normally require that the provider obtain either "tail" (extended reporting) coverage from their old carrier or retroactive (prior-acts) coverage from their new carrier.

Occurrence policies cover policyholders for any incident that occurs while the policy is in effect, regardless of when a claim is filed. Under an Occurrence policy, insured's pay premiums that take into account both current experience and future projections. Such claims are called "incurred but not reported" (IBNR). Occurrence insurance rates can vary significantly because of the difficulty in projecting future claims expenses. Under an Occurrence policy, the limits of liability are those in effect when the incident occurred. The advantage of an Occurrence policy is that neither Retro-Active (prior acts) nor tail coverage is needed when terminating coverage.

A Claims-Made Policy will only cover you if the alleged incident happened while the policy was in force (after your “Retro-Active” date) AND was reported to the carrier while the policy was still in force. Meaning, you cannot just leave your current carrier and start over with a new insurer. Specifically, you will need to purchase either the extended reporting endorsement (“tail coverage”) from your current carrier OR purchase prior acts (“nose”) coverage from your new insurance carrier.

Purchasing tail coverage from your current insurance carrier effectively converts your Claims-Made policy into an Occurrence policy because it allows you to report claims in the future to that carrier even though the policy period has ended. Note, if you purchase tail coverage from your current insurance carrier and start over with a new insurance carrier you will have to new Retro-Active date.

Finally, if you have been continuously insured by your insurance carrier for at least 5 years and you will be at least 55 years of age upon permanently retiring from the practice of medicine (or if you have been continuously insured with your current insurance carrier for 10 or 15 years and will be younger than 55 years of age when you retire), there are several insurance companies that may offer you free tail coverage.

Prior acts (or “nose”) coverage allows you to transfer your existing Retro-Active Date to your new insurance carrier, eliminating the need to purchase tail coverage from your last carrier. In some cases, it is less expensive to obtain prior acts coverage from the new insurance carrier when purchasing a first-year Claims-Made policy than to buy tail coverage from your last insurance carrier.

A Retro-Active Date is the first day you became insured by a Claims-Made policy. This date will follow you for the rest of your medical career in most cases.

A "Consent-To-Settle" provision defines the terms under which a settlement may be agreed upon by the insurance carrier and the provider. In most cases, the Consent-To-Settle provision will require the insurance carrier to obtain the provider's written permission to settle a claim. If this provision is not present, the insurance carrier can settle a claim without permission from the provider.

If your insurance policy also contains a “hammer” clause, the insurance company must obtain your written permission to settle a claim against you but you may be responsible for all costs and fees exceeding the amount of the settlement proposed by your insurance carrier if you will not agree to that settlement. With a hammer clause, the up side is that, if you push the case to trial and you win, you avoid having the proposed settlement becoming a permanent part of your claims history. The downside, if you lose, is that you would have to pay the difference between the amount of money the case could have been settled for and the actual costs of awards and extra defense.

There are two distinct types of insurance providers offering medical malpractice insurance: Admitted Carriers and Non-Admitted Carriers. The main difference between the two is in how each is licensed and regulated.

Admitted Carriers must file an application for, and receive, a Certificate of Authority to operate in a given state and must follow the proscribed state regulations for rates, rules and forms as established by that state. In New York, Admitted Carriers additionally: (1) must file rates with New York, (ii) must participate in New York’s Guaranty Fund, (iii) are approved by all hospitals as acceptable proof of medical professional liability coverage and (iv) can quality for excess coverage beyond the state-funded $1,000,000.00 additional liability limits.

Non-Admitted Carriers or Risk Retention Groups ("RRG") are a corporation or other limited liability associations functioning as an insurance company and organized for the primary purpose of assuming and spreading the liability risk exposure(s) of its members. An RRG is subject to the rules and regulations of the insurance regulatory body of its domiciliary state. Except for in the domiciliary state, an RRG is exempt from any state law, rule or regulation that regulates or makes an RRG unlawful. An RRG, like any insurance carrier, typically bears risk and may purchase reinsurance. Often times, RRGs offer lower, more flexible rates, can cover higher risks and provide more flexibility in coverage design.