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As a physician, your malpractice policy is one of the most critical safeguards of your professional career. While you likely have a solid understanding of your coverage, taking the time to periodically review and refresh your knowledge is invaluable. Policies can vary in their terms, exclusions, and limits, and even a small gap in understanding can leave you vulnerable.

This article provides a clear and concise breakdown of key elements in malpractice insurance. From understanding policy specifics to common exclusions and coverage limits, make sure that your policy aligns with the needs of your practice and offers comprehensive protection.

The importance of reviewing your malpractice policy

Changes in your practice, new legal precedents, or updates to state regulations may create gaps or new exposures that your current coverage doesn’t address.

Regularly reviewing your policy ensures it evolves with your professional needs and gives you peace of mind that you’re fully protected. Beyond that, it helps you identify areas where you may need to adjust coverage – such as whether to address new services you’re offering, changes in patient volume, or emerging risks in the field.

By taking the time to revisit your policy, you’re safeguarding not just your career but also your financial future and professional reputation. If your employer provides coverage for you, you can discuss your policy with your practice manager or risk manager. If you obtain a policy for yourself, your broker should be able to walk you through your coverage and answer any questions you may have.

Find out more about individual and employer-provided malpractice insurance.

Key terms in malpractice insurance policies

Understanding the precise language in your malpractice insurance policy is key to ensuring you know exactly what is covered and what is not. Policies are often packed with industry-specific terminology that can sometimes feel dense, even to experienced professionals.

A quick review of the most relevant terms can clarify your understanding and help you navigate your coverage with confidence.

Common terminology and definitions

Here are a few key terms frequently encountered in malpractice insurance policies:

Claims-made policy: Covers claims made and reported during the active policy period, provided the incident occurred after the policy’s retroactive date. Essential for understanding timing-related coverage.

Occurrence policy: Covers claims for incidents that occur during the policy period, regardless of when the claim is reported. Where available, this provides more flexibility for the practitioner.

Retroactive date: The start date from which your claims-made policy provides coverage for incidents. Anything before this date is excluded, so it’s crucial to ensure prior acts are covered either by the new policy or through an extended reporting endorsement (tail).

Tail coverage: Extends the reporting period for claims made after a claims-made policy ends. Vital consideration when retiring, switching insurers, policy cancellation or leaving a practice.

Nose coverage: Provides prior acts coverage when transitioning between claims-made policies, ensuring no gaps in protection. This is an alternative to buying a tail and may be referred to as picking up a retro date.

Consent to settle clause: Determines whether the insurer requires your permission to settle a claim, and where available it can be helpful for protecting your professional reputation.

Vicarious liability: Covers liability to a practice (entity or solo corp owner) for actions performed by others under your supervision, such as registered nurses, medical assistants, or other contracted practitioners. Nurse Practitioners (NPs) and Physician Assistants (PAs) may carry their own professional liability policies or be covered under shared limits, depending on state requirements and practice arrangements.

Endorsement: A customization to your policy that adjusts coverage, such as adding new procedures, changing specialty classification, or modifying coverage limits. Modifying limits are generally only allowed at the renewal date with few exceptions.

Step rate premiums: This graduated factor approach only applies to the first 4-5 years of a claims made policy as exposure volume grows. This is because claims-made policy premiums are calibrated to gradually increase (tracking growing period of exposure) until reaching the mature rate of the policy premium usually around year 4 of policy. On the upside, this means your cost over those first 3-4 years is substantially lower than an occurrence policy.  On the downside, the aggregate limits on a claims made policy become diluted by time (covering multiple years on one set of limits) unlike an occurrence policy which has a fresh set of limits each policy year. You might wonder why these variations developed. Suffice it to say, these innovations were applied to medical malpractice insurance in many settings more than 50 years ago in response to rising litigation that led to insurers reducing coverage, increasing premiums dramatically, and even withdrawing from offering coverage entirely.

Loss run report: A claims history summary required by underwriters and insurers to evaluate your risk in an insurance application. Reviewing this highlights trends, patterns and potential gaps in coverage.

Typical exclusions in malpractice coverage

While malpractice insurance is designed to offer robust protection, it’s equally important to understand what isn’t covered. Knowing the exclusions in your policy can help you mitigate risks and avoid costly surprises when a claim arises.

What’s often not covered

Malpractice policies generally exclude certain scenarios that fall outside the scope of standard professional liability. Common exclusions include:

  • Intentional acts or fraud: Claims arising from deliberate wrongdoing or illegal actions are typically excluded.
  • Criminal activities: Coverage doesn’t extend to claims tied to criminal behavior.
  • Unlicensed practice: Any claims linked to practicing medicine without a valid license or beyond the scope of your credentials.
  • Non-medical professional activities: Incidents involving roles outside of direct patient care, such as administrative or consulting errors, may require separate coverage.
  • Specific procedures or treatments: High-risk procedures, experimental treatments, or areas like cosmetic surgery may be excluded unless specifically endorsed.

How exclusions may affect your practice

Exclusions can leave significant gaps in your protection if not fully understood. Here are some insurance industry-specific definitions that may factor in, for example:

  • Risk exposure: A claim related to an excluded procedure could result in the insurer denying all or some of a claim, creating substantial out-of-pocket expenses.
  • Patient trust: Navigating claims without coverage may disrupt your focus and impact your ability to maintain trust with your patients.
  • Operational adjustments: If your practice evolves, such as offering new treatments or expanding services, your broker should be consulted to ensure that you are addressing these risks with the underwriter in advance of the change occurring.

Coverage limits in malpractice policies

Coverage limits are a cornerstone of your malpractice policy, defining the maximum financial protection it offers. It’s essential to understand how these limits work to ensure they align with your practice’s risks and needs.

Types of coverage limits (per-claim vs. aggregate)

Per-claim limit: This is the maximum amount your insurer will pay for any single claim. For example, if your policy has a $1 million per-claim limit, that’s the most you’ll receive for any individual claim, regardless of the actual settlement amount.

Aggregate limit: This is the total maximum your insurer will pay for all claims combined within the policy period. For instance, if your aggregate limit is $3 million, you’ll have that amount to distribute across all claims for the policy period.  Remember that the policy period in an occurrence policy varies from occurrence to claims made.

Defense outside the limits: This is an important consideration for clinicians, as it ensures that legal defense costs do not reduce the funds available to pay a claim if you are found liable in a settlement or trial. Generally, most admitted carriers offer defense outside or in addition to the policy limits. In contrast, surplus lines carriers typically include defense costs within the policy limits. However, some surplus lines carriers may offer defense outside the limits for an additional premium.

Evaluating whether your limits are sufficient

To determine if your coverage limits are adequate, consider the following factors:

  • Practice scope: Specialties with typically higher claims activity, such as obstetrics, often suggest the need to consider higher limits due to the potential severity of claims.
  • Patient volume: Practices with larger patient bases are more likely to face multiple claims, increasing the importance of careful evaluation of available aggregate limit options.
  • State requirements: Some states mandate minimum coverage levels, but these often will not adequately protect your practice.
  • Legal trends: Rising settlement amounts and evolving case law could mean your current limits are insufficient for today’s litigation environment. So-called nuclear verdicts are four times as common as they were just 12 years ago.

Protect your practice with expert guidance

Even the most comprehensive malpractice policy can leave certain risks unaddressed. That’s why it’s essential to work with specialized brokers who understand the unique needs of healthcare providers.

At Physicians Insurance, we specialize in guiding physicians through the complexities of malpractice coverage. Our team can help you:

  • Audit your current policy: Identify exclusions, limits, or terms that may leave you exposed.
  • Evaluate evolving risks: Ensure your coverage adapts to changes in your practice or advancements in your field.
  • Tailor solutions to your needs: Recommend endorsements or supplemental policies to close any gaps and provide peace of mind.

Don’t leave your protection to chance. Reach out today and let’s talk about your malpractice policy.

Article by Thomas J. Bryant, ARM, and Physicians Insurance President