Frequently Asked Question about Medical Malpractice Insurance
The vast majority of Florida doctors are insured with a claims-made policy, not an occurrence form. The only occurrence forms in Florida today being purchased by physicians and surgeons are those offered either by the Florida Medical Malpractice Joint Underwriters Association (FMMJUA, or JUA for short) or by The Medical Protective Company. Occurrence policies are often used when retired doctors decide to go back and practice part time but know that they will not practice for five years or more.
Claims-made policy coverage responds, as the name implies, when claims are made against an insured versus when the incident happens in an occurrence form policy, like almost all automobile or homeowners policies. The popularity of claims-made policies stems from the savings that insureds receive in the first four years when a claims-made policy’s rates are lower than a comparable occurrence form. However, these early savings in a claims-made policy are offset by a costly tail component, which occurrence policy do not have, but most doctors do not care as they push tail costs into the future. Unfortunately, many doctors and office managers are often confused about the real facts surrounding these costly tail provisions and consequently pay way too much for a malpractice insurance policy because of their misunderstanding.
In most claims-made policies a tail is called an “extended reporting endorsement” which, as it implies, allows claims to be reported to an insurer beyond a policy termination date. When a claims-made policy is terminated, there are two ways to handle the coverage without exposing the physician to an uninsured claim. The first way is to purchase a tail to complete the existing claims-made coverage. The second method is to purchase a replacement policy that includes coverage retroactively back to the same date as the previous claims-made policy. Selecting either option would still provide coverage so that if a claim is subsequently made there would be a policy to respond to the claim. Normally the preferred way to change companies is to replace the coverage with a policy that has the same prior-acts coverage and not purchase a costly tail. On average tails cost twice your annual premium, unless you are receiving a special discount, such as a new practitioner credit, in which case your tail will be even more expensive.
Yes, there is good news in this tail maze. Many companies offer provisions for free tail options. The standard in the marketplace today is that if you have been insured with the same company for at least five continuous years, and you fully and permanently retire from medicine you will receive a free tail. Some companies mandate that you must be at least 55 years. The least favorite ways to get a free tail from most insurers is in the case of your death or permanent disability. I advise that when you are within five years of retirement you focus on finding coverage with a company that you are confident will be firmly in the marketplace at least until your retirement so that the tail cost can be avoided. The vested tail issue can become contentious for groups with older doctors who are vested with free tails are less enthusiastic about losing their vested tails by switching the group coverage to insurers that might be offering lower rates.
One of the most common problems with tails occurs when you move to a state in which your insurer does not offer coverage. Again, planning is the key. As soon as you know that you might be moving, inquire about coverage in the other state and if your current carrier won’t transfer your coverage, then try to find one of the companies that will.
The next most common reason that you are forced to purchase a tail is when you join or leave a group. Many groups’ contracts demand that when you join the group that you do so without any prior-acts exposure, which means you must buy a tail from your existing policy’s company if you want your coverage to remain continuous. Then, if you leave the group, you are often required to purchase a tail from the group’s insurer to satisfy the group’s concern about completing your coverage during the time you were practicing with them. Even though your prior-acts coverage can be brought and taken with you so that you don’t have to purchase a tail, this is often not in the employer’s best interest and can violate the group’s contract.
At the termination of your practice if you are not vested with a free tail you should consider purchasing a tail so that coverage will be in place in the future to handle any claims from incidents that you have not already reported to your insurer. Also if you are going bare in the future you should decide if you want to purchase a tail for your previous exposure then go bare for any future incidents. You must weigh the cost of the tail against the cost of defending and paying a plaintiff in a case against you.
Purchasing a tail might also be smart if your policy has been non-renewed because of a claims issue and you now find yourself being forced to pay much higher rates for future coverage. Check the price of a tail policy before your termination date from your existing insurer. Once a tail is purchased, a first year claims-made rate can be very attractive for the following year. The tail and first year claims-made policy without retroactive coverage may be cheaper than a full retroactive coverage policy.
Standard companies’ offer tails that cover claims reported for an unlimited period. The incident must have occurred between your retroactive date and your policy termination date, but you can report it anytime as long as your purchase a tail.
You must be very careful that you ask questions about the tail provisions of substandard, excess surplus lines companies’ coverage. Beware that they often offer tails that cost 200% of your premium and are only effective for one year. In this case, when the tail expires after a year from purchase, any claims made against you will not be covered. Since the real risk of a claim runs for at least four years from the incident date, you are taking a big risk with only a one-year tail, and an incident report during the tail period will not trigger coverage like most standard market insurers.
Unfortunately, there is a very limited market that will even consider offering stand alone tail coverage if they did not insure you immediately prior to your need for a tail.
Companies do allow you to lower the limits for your tail but remember that tail coverage has to last through four years of claims exposure. Unlike your normal policy the limits are not recharged each year at renewal, so lower limits have a better chance of being exhausted faster.