There are two primary types of liability coverage available to medical professionals: claims-made and occurrence. Certain variants of each type exist as well, such as convertible claims-made policies and claims-made-and-reported policies. Policies are generally defined by two things: timing of claims and monetary limits. Occurrence policies cover incidences of malpractice that took place while the policy was in effect, while claims-made policies provide coverage if the claim is filed while the policy is in effect.
A History of Medical Malpractice Coverage Types
Liability coverage was traditionally occurrence only, as the necessity of claims-made policies was not yet fully realized. It was reasonably assumed that if a claim was made well after the policy period, it would be dismissed by the court on statutory grounds. For example, no reasonable plaintiff attorney would take on a claim in 1972 for a 1954 incident, as it would be quickly dismissed by the court. The origin of necessity for claims-made coverage came in the 1970's, with the wave of toxic tort suits for asbestos and diethylstilbestrol. Liability insurance policies in place at the time had been terminated for as long as two, three or four decades, yet those liability policies were implicated when the wave of claims came in.
Although “tail coverage” is meant to cover any claims that arise after the policy period expires, 20-40 years significantly exceeded the boundaries of any tail policy. The outbreak of toxic tort suits had a two-fold on the insurance industry: premiums for newly-written policies skyrocketed, because the insurance industry had learned a hard lesson about assuming the worst toward the risk of claims; claims-made policies came about, which covers the insured so long as the claim is made during the policy period, not the incident which gave rise to the claim. Had claims-made policies existed prior to the wave of toxic tort claims (during the period in which workers were exposed to asbestos), insurance companies would not have to have covered the defense costs and damages of those suits because the claims were brought after the expiration of the policy period. Claims-made policies have the effect of substantially reducing the insurer's risk, pushing a great deal of risk back to the policyholder; this new breed of policy was subject to a great deal of litigation in the decades following the mass of toxic tort suits. To the credit of insurers, the increased risk of liability makes occurrence policies significantly more expensive for the policyholder, so claims-made policies can be defended on account of their lower cost to the policyholder.
The first type of liability coverage offered on the insurance market, occurrence policies covered the insured for any incidence of malpractice that occurs during the policy period. The period begins at a “retroactive date” laid out in the policy. It will cover any and all claims made after the termination or expiration of the policy, so long as the event that caused the claim to be filed occurred when the policy was in full force. This is substantially riskier for insurers, who in essence provide permanent coverage for any incident that occurred during the policy period. Upon cancellation of the policy, their duty to the policyholder should a claim be filed never cease. Because claims-made policies only provide coverage if the claim is filed during the policy period, the insured is left vulnerable when the policy expires.
This is why claims-made policyholders may sometimes purchase extended reporting endorsement, which covers claims filed after the policy expires. Occurrence policies do not have this drawback - there is no need to purchase extended reporting endorsement because the insured can report a claim at anytime with an occurrence policy. Generally speaking, occurrence is the most desirable type of coverage - hence its heftier price tag. However, it is not available in all states. Year to year, occurrence policies are priced at a level, unchanging premium
The insurance companies' response to the toxic tort suits of the 1970's and 80's, claims-made policies are currently the dominant policy form on the medical liability market. Appealing to both insurance company and policyholder, these policies shift a great deal of risk onto the policyholder and minimize the risk of the insurance company, but cost much less than the traditional occurrence policy. They sharply limit the insurance company's long-term liability, eliminating their risk as soon as they close the book on a policy. A claims-made policy only covers claims that are filed while the policy is in full force. Both the malpractice incident and the claim must occur during the policy period. If there is a reporting provision in the policy (which there usually is), the insured is only covered if they report every incident that might lead to a claim/lawsuit to the insurance carrier. If they do not report the incident and a claim is later filed, the company may be able to deny coverage.
However, if the insured opts for excessive prudence and reports every incident with even a chance to ripen into a claim, they may be characterized as a riskier individual to insure because of the high number of reported incidents. Occurrence policies, by nature, essentially provide permanent coverage for any instance of malpractice that occurred during the covered policy period. A claim may be filed years after an occurrence policy expires, but it will still be covered if the policy was in effect when the malpractice event took place. The same claim would not be covered under a claims-made policy because the claim was filed well outside the policy period. To obtain coverage for claims filed after a claims-made policy expires, the insured has the option to purchase tail coverage.
Tail coverage may be as much as three times as expensive as a normal claims-made premium, but can be vital in the protection against claims if any arise shortly after the policy expires. The majority of professional, errors and omissions (E&O), directors and officers (D&O), and employment practices liability insurance (EPLI) are claims-made policies. Such policies, when written, specify a “retroactive date” which is best described as the “start date” of the policy. As it is ‘retroactive,' this start date usually precedes the day the policy is adopted. There is no coverage for any event prior to this specified date.
Claims-Made and Reported Coverage
Claims-made and reported coverage is a restrictive variant of claims-made coverage which ostensibly requires that the insured report all incidents which could possibly give rise to a claim. If the incident is not reported to the insurance carrier and a claim is later filed, the carrier could deny coverage on those grounds. Because this stringent provision imposes a further obligation on the insured, it also works to decrease the insurance company's share of risk. Whether or not their duty to defend is triggered now also depends on the insured properly reporting every possible incident with due diligence. If they do not, the insurance company has created a loophole through which they do not have to defend the insured. Not all types of claims-made policies are claims-made and reported policies, however, a substantial amount are.
This type of policy may be written for an employer and their pool of employees, for example. It is purchased not on an individual basis, but on a group basis as the name suggests. The policy may cover all eligible employees and possibly their dependents. Because the insurer calculates their risk differently for a group policy, the same general rules differ from the forms of coverage described above. Group malpractice coverage is available to those in small or independent practices or may be purchased by the hospital employer for their employed physicians.
In a nose/prior acts policy, your new insurer or employer effectively “picks up” the policyholder's prior acts as a healthcare provider, offering coverage in the event that a claim arises.