Insurance Coverage Options

What are my med-mal insurance policy type options?

Medical professional liability insurance may be purchased in two forms: Occurrence or Claims-Made. The insurance protection afforded by either type of policy is largely the same. The difference lies in how each policy responds to a loss. The following definitions explain this difference:

  • An Occurrence policy responds to a loss if a policy is in force at the time a medical incident occurs.
  • A Claims-Made policy responds to a loss if a policy is in force at the time a claim is reported.

Because of the difference in how these policies respond to a loss, there is a significant difference in how they are priced, particularly in the first several years.

EXAMPLE

  • Dr. A and Dr. B have identical medical practices.
  • They both purchase professional liability policies identical in limits and coverage.
  • The only difference in the policies is that Dr. A buys an Occurrence policy and Dr. B buys a Claims-Made policy.
  • Assume further that there are no rate increases for either physician for five years.
  • Please see the following chart* for each physician’s premium payments.

* The numbers in this chart do not reflect a real policy and are merely a representation of the pricing structure.

Premium
Dr. A Occurrence
Dr. B Claims
Difference (Reporting Year)

Year 1
$1,000
$250
$750

Year 2
$1,000
$500
$500

Year 3
$1,000
$700
$300

Year 4
$1,000
$850
$150

Year 5
$1,000
$900 (Mature)
$100

Total
$5,000
$3,200
$1,800

 

Occurrence Policy
When you purchase an occurrence policy, the cost to cover all malpractice actions against you resulting from acts occurring during a policy year is paid in full. No additional premium is required if you cancel your policy. The premium you paid will cover all future claims based upon acts done by you during a policy year. For example:

1. A medical practitioner purchases an occurrence policy from LAMMICO for 2012. The insured decides not to renew for 2013. LAMMICO is presented with a claim in 2014 for surgery the practitioner performed in 2012. The company will defend the practitioner because the incident occurred during the policy period of 2012, during which the practitioner was insured.

2. If the same medical practitioner had performed the surgery in 2013, LAMMICO would not provide coverage for the practitioner because the incident would have occurred after the policy period of 2012, when the practitioner was insured.

Claims-Made Policy
The event or peril insured under a Claims-Made policy is the actual making of a claim. LAMMICO’s Claims-Made policies insure claims made during the policy’s term, as long as the occurrence took place on or after the applicable retroactive date. The retroactive date is the earliest date to which the insurance under your policy applies as stated in the Declarations and applicable endorsements.

When claims-made coverage is initially purchased, the premium charged will be lower than premiums collected for appropriately-priced occurrence policies. The premium charged for the claims-made coverage is made based upon the possibility that a claim will be made during the year of the premium charge. Claims resulting from professional services are not usually reported during the first year; therefore, the first year’s Claims-Made premium is significantly lower than the following years’ premiums.

This stair-stepping of premium continues for five years until you reach a mature premium. At that point, assuming there are no rate increases, your premium remains stable and you pay the same premium every year thereafter, with one significant exception. That exception occurs when you cancel your policy. It is the reporting endorsement, or “Tail.”

Reporting Endorsement, or “Tail”
Occurrence policies do not require extended reporting endorsements (tails) if coverage is discontinued. This is because if the insured event occurs during the policy’s period, then coverage under the Occurrence policy applies regardless of when the claim is made.

Claims-Made policies, however, do require the purchase of reporting endorsements or tails if the coverage is discontinued. This is because the policy only covers claims that are made during the policy’s period. Future claims may arise and be the first reported after the termination date of your Claims-Made policy. A reporting endorsement or tail provides insurance for covered losses arising after your retroactive date and reported after your policy’s termination date.

Important Features of LAMMICO Claims-Made Coverage

Aggregate limit for reporting endorsement or “Tail”
A single aggregate will be applied. This means that the policy will afford one maximum amount of insurance to cover all prospective claims that may be brought against a given practitioner. For insureds who have purchased basic limits, the aggregate limits of the reporting endorsement may be expanded upward to some degree greater than whatever aggregate limits were carried by the insured at the time of the termination of his or her basic policy.

Changes in risk classification
If an insured decides to “step down” from his or her current classification to one rated a lower risk (e.g. step from a surgical to non-surgical practice) then a one-time “step down” charge is required. This one-time charge is designed to cover the continuing exposure of potential claims arising from the prior, higher-rated classification. All future premiums will be calculated based on the lower-rated risk classification. The policyholder’s retroactive date remains unchanged.

While the retroactive date of the policy would remain the same as before the risk classification change, the reporting endorsement ultimately charged would be based upon the insured’s risk class at the point of policy termination.

Retirement, death, and disability
The LAMMICO policy includes a waiver of the reporting endorsement premium if the policyholder dies, becomes permanently disabled, or if the policyholder decides to permanently retire from the practice of medicine while the claims-made policy is in force. With respect to the retiring practitioner, certain age and years insured requirements apply.

For more information, please contact the LAMMICO Marketing Department at 504.831.3756 or 800.452.2120.