An anesthesiologist named in a malpractice suit soon regretted his previous decision not to purchase "tail" coverage when leaving his previous insurance carrier.
The new carrier was not willing to provide a retroactive date that would have enveloped the tail coverage time period. "Therefore, the individual had no coverage when a suit was filed before the effective date of the new carrier's policy," says Michael R. Tamucci Jr., vice president of claims at MagMutual, an Atlanta-based provider of medical professional liability insurance.
The physician had to pay for defense costs out of his own pocket. "The case was eventually dismissed without a loss payment, but with significant legal defense payments to his attorney," says Tamucci.
In this unfortunate scenario, the provider is at risk for being held personally liable for defending the claim and any related indemnity payments. Kathryn Meyers, director of broking at Aon National Health Care Practice in Chicago, says, "The option to purchase from the in-force carrier would likely have expired and would no longer be available. I am not aware of a carrier that would sell coverage for a known claim."
Though it's possible the carrier would provide some accommodation, there is certainly no obligation to do so. "The carrier may well be reluctant to do so, for fear of being drawn into the claim or any bad faith," says Meyers. "The carrier might direct the physician to appropriate legal counsel at preferred rates."
Confirm there are no lapses
Because doctors are at risk of losing their insurance benefit if they have a gap in coverage when changing carriers, "this begs the need for tail coverage," says Tamucci. "This provides extended reporting when the physician transfers from one practice to another. He gives these recommendations:
When leaving one insurance carrier, a physician should always purchase tail coverage or request a retroactive date from the new carrier that provides coverage for any potential coverage gaps.
"Physicians can seek guidance from the carrier or agent to confirm that there are no lapses," says Tamucci.
Physicians should be aware that they will pay an additional premium for tail coverage, and it can be expensive.
"Pricing of tail coverage is typically pre-determined and documented in the insurance policy," says Meyers. Policy premiums are graduated in the first few years because risk is less. Tail insurance is calculated on the nondiscounted or "mature" policy premium.
The cost varies depending on the term of the tail, which could be one year, three years, five years, or unlimited, and typically it will range from 100%-250% of the mature policy premium. DDR [Death, Disability and Retirement] provisions might discount, or even waive, any tail premium requirement, says Meyers.
"A physician joining a new entity may be given or be able to procure 'nose/prior acts' coverage from the new entity at its rates," says Meyers. "This risk might even be assumed through the new entity's captive insurer."
Tail coverage purchased from a third-party insurer is more difficult to find, says Meyers, though some options exist. "Limits will be stand-alone and refreshed, since there are no existing policy limits to follow," she notes.
With tail coverage, physicians can report a case after their policy has expired or has been canceled, as long as the incident took place during the time the expired or canceled policy was in place and within the defined term of the tail, if not unlimited.
Most malpractice policies are "claims-made," says Mike Merlo, Esq., managing director of casualty legal and claims at Aon Risk Solutions in Chicago. This phrase means that coverage is triggered by notice of the claim given to the insurer during the policy period.
"In contrast, with an 'occurrence' policy, you can give notice of a claim years after the policy expires, provided the act or omission giving rise to the claim occurred during the policy period," says Merlo.
If a physician's malpractice policies have the more typical "claims-made" trigger, then tail coverage is an important option to consider, says Merlo, "particularly if the physician is changing insurance carriers or making other change to their insurance."