Medical malpractice insurance is a vital part of any risk management program, but it is easy to assume that whatever coverage you have had for a while is adequate. It may not be, and a regular review of your insurance policies is a good way to avoid nasty surprises.
Hospital risk managers should review coverage regularly and assess whether it will be sufficient, says Rachel Nudel, JD, partner with Lindabury, McCormick, Estabrook & Cooper in Westfield, NJ.
“A common mistake is to have enough coverage for the facility or healthcare entity, but not enough for the physicians, nurses, and other clinicians who work there and will be covered by the employer. That’s basic, but it’s a No. 1 concern,” Nudel says. “There is sometimes the misconception that ‘If I have enough coverage for the entity, that should be enough to cover everyone.’ That is not the case.”
Individual policies typically impose a limit of $1.3 million per occurrence and $3 million in the aggregate, but hospital policies will have greater limits, Nudel notes. Whatever the limits, the policyholder must understand that it is liable for anything beyond that, she says.
“Particularly with physician groups, we see the mistaken assumption that they don’t have to worry about payouts because they have coverage. That is not necessarily the case,” she says.
The type of coverage also is important. The most common policy is a claims-made policy, she says. This insurance policy provides coverage only for claims made or reported during the time the policy is in effect. It costs less than other options, with the premium starting low and gradually climbing for the first few years, then levelling off.
“The problem with this type of policy is that if a claim is made after the policy is terminated, the insured would not be covered even though there was coverage in place at the time of the incident,” she explains. “Tail coverage can be purchased for extended coverage, but those policies are super expensive, about two-and-a-half times the yearly premium of the primary policy. When you’re talking about clinicians who are at higher risk, that can be a lot of money.”
Another option is the occurrence-based policy, which includes coverage for service provided during the term of the policy, but also whenever the claim is reported or made, including after the policy is terminated. This type of policy is more expensive than a claims-made policy, but it eliminates the need for tail coverage, Nudel notes.
“Everyone likes that option, but few insurers offer them because it is difficult to predict the risk of claims made in the future for services provided today,” she says.
The least-common policy is the claims-paid policy, in which the premium is based on the claims settled in the previous year and the claims anticipated in the next year, Nudel says. The policyholder can be charged extra fees with this type of policy that go beyond the premium.
Also, consider the consent to settle. If the insurer pushes for that against the doctor’s wishes, some policies have a “hammer clause” that allows the insurer to settle without the doctor’s consent, Nudel notes. But if there is no consent-to-settle provision, the insurer cannot settle.
Consider Defense Costs
Defense costs are an important point, with some policies specifying defense costs are inside the policy limits and others saying they are outside, Nudel explains. Inside means that if you have a $1.3 million limit per occurrence and you spent $300,000 on defense costs, you have only $1 million to pay the claim.
Exclusions also will be spelled out in the policy. Typically, intentional acts and sexual abuse will be excluded, but policies also may exclude duties carried out as medical director of a hospital, Nudel says. That will require a separate policy.
The amount of coverage is a critical factor, of course, and Nudel says it is theoretically possible to be overinsured. One argument is when plaintiffs see the defendants have an abundance of insurance coverage, they will seek all of it, whereas they may have settled for much less.
“I think not having enough coverage is more of a problem. The only real downside to having too much insurance is the cost of the premium,” she says. “It comes down to a cost-benefit analysis of whether you want to risk overpaying for too much insurance or risk having not enough insurance for a serious claim, which can be scary.”
- Rachel Nudel, JD, Partner, Lindabury, McCormick, Estabrook & Cooper, Westfield, NJ. Phone: (908) 233-6800. Email: firstname.lastname@example.org.