Society of Correctional Physicians

Legal and Legislative Updates

Source: scp, Originally published January 4, 2010

By Deana Johnson, JD

Posted on January 4, 2010 -

Legal and Legislative Updates

7 Things to Know about Your Malpractice Insurance

Insurance is like your health: You purposely don’t think about it until a crisis occurs. But as dull and complex as insurance can be, you likely know how much auto coverage you have and who to call if you have an accident.

When it comes to professional liability (“PL”) insurance, however, most don’t know more than the fact that they have it. Below is a quick primer on things you need to understand about the insurance that protects your livelihood.

1. What Insurance Do You Have?

The time to find out if and what insurance you have is not when you are served with a lawsuit. Plus, you do not have to read a 48-page insurance policy to get the answers you need. Just look at the declarations (DEC) page.

The DEC page will list the name of the insurance company, the name(s) of the insured, the limits of liability and the amount of the deductible. If you bought the policy for yourself, you are likely named as the insured.

However, most correctional healthcare providers are employed by either a government entity or private company. If that is the case for you, don’t be surprised to see your employer listed as the named insured. Then look under the section entitled “Additional Insureds” on the DEC page. It should either list you individually or, more likely, state something to the effect of “all providers employed by the named insured.”

If you have questions about the coverage, ask the human resource staff. If you are not getting information, contact the insurance company. Keep asking until you get the answers you need.

2. The All Important Consent Clause

Many providers fear having to report a settlement/judgment to the board governing their license. Such an event can negatively impact licensure, future employment, insurance terms, etc. Even if the estimated cost of defense of a lawsuit dwarfs a settlement demand from the plaintiff, the provider will not want to settle for fear of the reporting repercussions.

Of course, this choice places you at odds with your insurer, whose interest is to save money. If the carrier can settle a suit for less than it will cost to defend, it makes business sense to do so.

So can your carrier settle your malpractice suit out from under you? That all depends whether your PL policy contains a consent clause, which requires written agreement from the insured in order to settle a claim. If you are purchasing the policy, be sure to demand the inclusion of a consent clause. If your employer is providing the insurance, ask about the consent clause. You do not want to find out about your ability, or lack thereof, to control the course of a malpractice suit only after it is filed against you.

3. Claims Made v. Occurrence Based Coverage

These two little words make all the difference with regard to insurance coverage. A claims made policy is triggered at the time the claim is made. An occurrence based policy triggers at the time of the event that is the subject of the eventual suit. Occurrence based is far better coverage, and the easiest way to understand why is to use a real life example.

You graduate from school and go to work at a local jail through ABC Staffing. You leave after two years and go to work directly for the state, providing care at a local prison. In 2009, you are sued by a patient you treated while working for ABC. He developed neuroleptic malignant syndrome (NMS) from medication you prescribed.

Question: Do you have coverage for the suit?
Answer: Yes if ABC had an occurrence based policy; no if ABC had a claims made policy.

Question: Does it matter what type of PL insurance the subsequent employer has?
Answer: No, because the subsequent employer’s insurance is not going to cover you for care you rendered while working for the prior employer.

Question: Why doesn’t a claims made policy cover the suit?
Answer: At the time the claim was made through the filing of the lawsuit, you no longer worked for ABC and were not an additional insured under its PL policy. On the other hand, if ABC had spent the extra money to buy occurrence based insurance, the trigger date would be the date you rendered the allegedly negligent care to the patient. You would have been an employee of ABC and an insured under the policy on that date.

Question: So what could I do to avoid this situation?
Answer: Read on to Nos. 4 and 5 below.

4. What is Tail Coverage Anyway?

Related to the above analysis, if you move from a job that has claims made insurance, you need to explore whether to purchase “tail coverage,” an industry term used to describe insurance that covers you past the date of termination of a claims made policy. The tail continues that coverage through the date a claim could be made. That length of time differs depending upon what jurisdiction you practice in.

Tail coverage is notoriously expensive. It often comes with numerous exclusions that narrow its applicability. It is very important to understand the risks and benefits of purchasing such coverage. In addition, you will want to explore whether your new employer will bear all or part of the cost for the purchase of a tail.

5. When Exactly is a Claim Made?

In the example above, the claim was made at the time the suit was filed because no one had ever put the insurer on notice prior to that time. While you cannot control what type of PL insurance your employer buys or which private healthcare vendor the government opts to use, you can take important steps to ensure coverage for yourself. Report adverse events to the insurance carrier and “make the claim.”

If a patient has a serious reaction to medication you prescribe, report it. If a patient attempts suicide and has to be hospitalized, protect yourself and report it. If a lawyer sends you a letter stating she is investigating care given to a patient, report it.

You need to understand the mechanism your employer uses for reporting incidents to its PL carrier. Use that system: it will protect not only your employer but you.

In our example above, while you were young, naïve and working for ABC, you did not know to report the NMS patient’s outcome the minute he was diagnosed. Instead, you thought since he recovered, you were safe. You did not report the adverse outcome so the claim was not “made” until suit was filed against you. By that time, you had no coverage.

Now that you know better, you would report the claim when the hospital specialist diagnosed your patient with NMS. The insurance company would set up a file and mark the claims made date as the day you gave notice. Fast forward two years when you are served with the suit. The insurer is obligated to defend you because the claim was made during the time you still worked for ABC. Another advantage to timely reporting is the carrier cannot disclaim coverage due to failure to put it on notice. When in doubt, report.

6. The Effect of Changing Employers

In the correctional field, providers can be forced to change employers in many situations: the government entity decides to privatize; the private healthcare vendor loses the contract or merges with another company; etc. Other times, you simply may decide that your employment situation would benefit from a job change.

Whatever the reason, you need to plan ahead to make sure that no gaps in insurance coverage occur. Understand the type of coverage you have with the original employer. Determine if you need tail coverage. Inquire about the type of coverage with the new employer. If there will be a coverage gap, negotiate for the new employer to buy the insurance needed to cover this risk. Companies are always going to have more room to negotiate price and coverage terms with an insurance company than an individual will.

Include all agreements about insurance in your new employment contract. For instance, if the new employer agrees to buy the tail coverage, specify that fact, the name of the carrier, the limits and all other relevant details in your written contract. Who will pay the deductible if a claim is made? Will you be compensated for time spent defending a case while working for your current employer?

7. I Have Coverage So I am Set, Right?

Not so fast. Now that you know and understand the coverage you have, you need to appreciate the risks that still exist even with good insurance.

PL policies almost always have a deductible, ranging from low ones in the $25,000 range to high ones in the $250,000 range. Only after the deductible is met does the insurance company have to contribute money.

Compounding this issue is the fact that medical malpractice cases are very expensive to defend. Not only do they involve significant work on the part of your attorneys, they involve the use of expert witnesses who can charge up to $2,500/hour for their services. The cost of taking such a case through trial can average around $250,000 depending upon the area of the Country where you practice. As you can see, that easily consumes the entire insurance deductible with just defense costs.

Thus, by the time your case is in the hands of the jury, the sole protection left is the remaining insurance limits. By way of example, if your insurance policy is $1 million per occurrence with a $50,000 deductible and the cost to get to trial was $250,000, you have $800,000 left in coverage.

If that sounds like a lot, what happens if the jury returns a $2 million verdict against you? The insurance carrier is only obligated to pay its $800,000, and the plaintiff is going to look to you for the rest if it is a judgment solely against you.

Thus, you can see that higher insurance limits offer more protection in such a situation. The best security is information so remain intimately involved from the time you start providing care to patients and share your newfound insurance knowledge with your colleagues.

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