‘Cover your Assets’. Experts offer tips on getting the most out of malpractice insurance.
Dermatology World article by Ruth Carol with contributions from Lamb McErlane PC partner Vasilios “Bill” Kalogredis.
You may not be paying for your medical malpractice insurance, but that doesn’t mean you shouldn’t know who the policy is with, what the policy covers, and how it works. Medical malpractice insurance protects physicians and other licensed health care professionals from liability associated with wrongful practices resulting in bodily injury, medical expenses, and property damage as well as the cost of defending lawsuits related to such claims, according to the National Association of Insurance Commissioners. At a minimum, the medical malpractice insurance policy should cover professional services, stated health care attorney Vasilios “Bill” Kalogredis, chair of the health law department at Lamb McErlane, PC, in Philadelphia. Because the type of services and procedures dermatologists provide can vary, it’s important that they specify which ones they offer when filling out the policy application. For example, does the dermatologist provide medical dermatology only, medical and surgical dermatology, Mohs micrographic surgery, dermatopathology, and/or cosmetics? Does the dermatologist have a subspecialty? What about teledermatology and locum tenens? “That will dictate what the premium cost is, what they are covering, and what the risk is,” he said. If an employer, such as a hospital, is paying the policy, many times it will cover only the work the physician does for that organization, Kalogredis added.
Usually the physicians in a group are covered by the same insurer, said Crystal R. Brown, senior vice president of underwriting for The Doctors Company, the nation’s largest physician-owned medical malpractice insurer. The same insurer will typically cover mid-level providers, such as physician assistants (PAs) and nurse practitioners, as well as the entity/ies. Often, physicians and mid-level providers will have the option for individual or shared limits, she said. Non-licensed individuals, such as medical assistants, may be covered under either the professional or general liability policy, said Daniel F. Shay, attorney with Alice G. Gosfield & Associates, P.C. in Philadelphia. Aestheticians may be able to purchase relatively inexpensive society-sponsored coverage, Kalogredis added. It’s important to remember that the physician typically supervises these individuals and therefore is liable for their actions. That’s why it’s important to list the number of non-physician providers and even aestheticians working in the practice or group and make sure everyone has the appropriate coverage, he said. In addition to providing insurance coverage for providers and employees, consider getting it for the business entity (e.g., corporation, partnership, or limited liability company). “If the doctor gets sued, the entity is likely to get sued,” Kalogredis said. “You want to protect the entity as well.” Generally speaking, malpractice insurance does not cover illegal acts, intentional violation of laws and/or regulations, and sexual misconduct. Including falsified information on the insurance application will void the policy.
Claims-made versus occurrence policies
There are two types of malpractice insurance policies: claims-made and occurrence. It’s important to understand the difference because a claim may be filed years after an incident takes place and it may or may not be covered, depending on the type of policy. A claims-made policy only provides coverage for incidents that occur if the policy is in effect both when the incident took place and when a lawsuit is filed. If a physician with a claims-made policy paid for 2016 is sued in 2018, that incident would not be covered. The claim would have to have been made in 2016 for it to be covered under the claims-made policy, Kalogredis explained. Very often, a physician stays with the same carrier and so the claims-made policy coverage is uninterrupted.
However, if the physician changes carriers, moves for a new job, or retires, he or she will need to purchase extended or “tail” coverage. Tail coverage, which is purchased from the existing carrier, extends coverage for a specified amount of time after a policy ends. Tail coverage is sometimes written into a claims-made policy. If not, it can be purchased. Another form of extended coverage is “nose” coverage for claims that arise from incidents that occurred under a previous terminated policy but first reported under the current policy. Nose coverage is typically purchased from the new carrier; sometimes it is incorporated into the new policy. It’s important to have continued malpractice coverage during times of transition for incidents that may have occurred in past years.
An occurrence policy is similar to what most people have on their houses and cars. It provides coverage for incidents that occur during the life of the policy, regardless of when the claim is made, and even after the policy has been canceled. If a physician with an occurrence policy for calendar year 2016 gets sued in 2018 for an incident that occurred in 2016, the physician will be covered, Kalogredis said. The only time a dermatologist would need tail coverage with an occurrence policy is if the carrier goes out of business, Shay noted.
The other difference between the two types of policies is cost. A claims-made policy is less expensive the first year. As it matures, which typically takes five years, the premium rises because it is covering more years. But in times of transition the physician will need to buy extended coverage. Depending on how many years the dermatologist is in practice, tail coverage in many cases is five figures, Kalogredis said. An occurrence policy is more expensive upfront, but it is more comprehensive and doesn’t require extended coverage. Fewer carriers offer occurrence policies because most physicians are interested in claims-made policies, Shay said, so the former may be harder to find.
When deciding between the two types of policies, Brown recommended considering the benefits of claims-made versus occurrence coverage; the number and quality of carriers that offer claims made or occurrence coverage; what happens if the dermatologist decides to leave the group, practice, or territory; and the cost of the policy over time. “Dermatologists should make sure that their employment contract clearly outlines who is responsible for securing medical professional liability coverage, nose, tail, and any endorsements or other enhancements needed when they negotiate their employment agreement,” she added.
The group that Chad Prather, MD, is part of purchased a claims-made policy because it was more affordable in the beginning and it allowed them to tailor the coverage to include the tail. “It’s my understanding that a claims-made policy and occurrence policy is essentially going to be the same price over time,” said Dr. Prather, who practices in Baton Rouge and Lafayette, Louisiana. “We felt like the claims-made policy with tail coverage would give us the same type of coverage as an occurrence policy.” Stan N. Tolkachjov, MD, who practices in a group in Birmingham, Alabama, also has a claims-made policy, but the physicians have to purchase tail coverage if they leave the practice.
Coverage limits refer to the maximum dollar amount the insurance carrier will cover in losses. There is the per-occurrence amount, which is paid out for a specific incident, and there is the aggregate, which is the amount that is paid out in total for the year. Some states have a minimum requirement for coverage limits, so be prepared to comply with that. In states with patient compensation funds and meaningful tort reform those limits will likely be lower. A common amount for coverage limits is $1 million peroccurrence and $3 million in the aggregate. When Dr. Prather first started in a small private practice, the group had $100,000 per-occurrence and $300,000 in the aggregate coverage limits. Now that there are five dermatologists and two PAs in five locations, including two in Texas, they moved to $1 million per-occurrence and $3 million in the aggregate. Louisiana is one of a handful of states that has a state
compensation fund. “As long as you participate in the state compensation fund and your claims are qualified, our state limits payouts to $100,000 per-occurrence and $300,000 in the aggregate,” he said, “but we go with the higher coverage just to be on the safe side.” Dermatologists should consider their severity for risk and exposure based on type of procedures, type of incidents/claims, frequency versus severity of claims, legal climate, and covering their own assets as well as their practice’s assets, Brown said. “You have to strike your own balance keeping these factors in mind. You do not want to have inadequate coverage, but you also do not want to be over insured and become a target due to having more insurance than other defendants,” she added.
Other factors to consider
Consent-to-settle clause. Sometimes, carriers prefer to settle a lawsuit, even if it lacks merit, because defending it might cost more money than it does to settle. If the malpractice policy does not have a consent-to-settle clause, the carrier can settle a claim against the physician’s wishes, even if he/she is blameless. Having a consent-to-settle clause prevents the company from settling a case without the dermatologist’s consent, Kalogredis said. That’s important because any settlement made on a physician’s behalf must be reported to the National Practitioner Data Bank. This, in turn, can affect the physician’s insurance status, hospital privileges, and participation in a managed care group. “A consent-to-settle clause is something dermatologists would want to have in their medical malpractice policy,” he said. “In fact, some doctors pick insurance companies because of that.”
Both Drs. Tolkachjov and Prather have a consent-to-settle clause in their policies. It was important for Dr. Tolkachjov’s practice to select a carrier that has a strong track record of defending their physicians in court and a reputation for not being quick to settle.
Be sure to avoid a “hammer clause,” which can impose some extra penalties to compel a physician to settle a claim, Brown warned. For example, if the physician chooses to go to trial instead of settling as recommended by the carrier, and the trial results in a higher award amount than the settlement would have been, the physician may be required to pay the difference.
A claims trigger can be either incident driven or written demand. An incident-sensitive policy recognizes incidents reported whereas a written-demand policy only recognizes written demands for money, Brown explained. In the latter case, the carrier will not recognize an incident until it is turned into a written demand. Most medical malpractice policies have incident-sensitive claims triggers, she added.
It’s important that the dermatologist understands what constitutes an incident and their obligation to report it, Kalogredis said. For example, if a patient complains about something, but doesn’t make a formal complaint, is that enough to trigger a claim for coverage? Does the physician have to notify the insurance company that there might be a claim? If the physician doesn’t report a potential claim, can the carrier deny coverage?
Dr. Tolkachjov must notify the insurance company immediately upon the notice of an incident or claim. “If something occurs that could potentially be a lawsuit, the providers and managers would discuss it and likely err on the side of caution and give that information to the carrier,” he said. Similarly, Dr. Prather’s policy has an incident-driven claims trigger. “It could be a verbal report, but there’s also a reporting form that gathers the details,” he said. “Our insurance company invites us to call and verbally report an incident. They are helpful about gathering information prior to a formal report being filed or a suit being filed,” Dr. Prather added.
Defense costs responsibilities.
Defense costs include attorneys’ fees and court costs. Some malpractice policies do not pay for defense costs or cap the amount the carrier will pay. If the policy limits the amount it will pay, be sure the limit is high enough to cover defense costs in addition to a settlement or judgment amount. Ask if defense costs are in addition to the primary limits of insurance or a part of the limit of liability, Brown said. “Policies with defense costs in addition to the limit of liability have additional monies for defense costs that do not erode the limit of liability. Read your policy carefully,” she added.
Both Drs. Tolkachjov’s and Prather’s policies cover defense cost responsibilities. “They’re paid by the insurance company and they are unlimited,” Dr. Prather said. “The policy states that the defense costs are outside the limits of liability.” Because the policy includes some limits for medical defense, the practice purchased supplemental insurance for that.
Many malpractice policies do not require a deductible. But some do offer it as an option that enables a physician to obtain a discount on the premium. An indemnity-only deductible requires the physician to pay it only in the event of an indemnity judgment. An indemnity and defense deductible must be paid as soon as expenses are incurred defending the claim, whether or not an indemnity payment is made. When deciding whether to get a deductible, dermatologists will have to balance the discount received versus the exposure, Brown noted. Some policies will pay the deductible and seek reimbursement. Read your policy carefully, she added. Neither Drs. Tolkachjov’s nor Prather’s policy has a deductible.
Risk management services.
Risk management services include, for example, the use of consent forms/checklists and patient safety protocols in the form of in-service training and/or on-demand webinars. “Whether risk management services are required or offered will vary depending on the marketplace, the carrier, and the loss experience of the physician,” Brown said. Some carriers offer premium discounts if the practice/group participates in these services designed to decrease claims and improve patient care. “If you can get a discount on your rate by doing these activities and it might help make you a little bit safer from a malpractice perspective, why not do them, unless it’s going to be a major impediment to implement them in your practice,” Shay added.
Both Drs. Tolkachjov’s and Prather’s carriers offer risk management services eligible for premium discounts. For Dr. Tolkachjov’s group, these services include complimentary risk assessments, consent forms, and checklists offered through educational seminars and on-demand webinars with an added bonus of continuing medical education credits. Sometimes the insurance company sends a representative and an attorney to the office to address the entire staff. “They are helpful because we discuss current issues and they provide good examples on a case basis of situations that can occur and how to help prevent them from happening,” he said. In Dr. Prather’s case, many of the services are provided through online education. “Our physicians tend to find the training very helpful,” he said. Recent courses addressed medical documentation, social media, and patient engagement.
Dermatologists may want to consider purchasing separate insurance coverage for other types of liability that are associated with running a medical practice, said Brown, who gave the following examples.
- Cyber liability: provides first-party and third-party coverage for bodily injury directly caused by a data security breach, coverage for civil regulatory fines and penalties, post event mitigation, coverage for identity monitoring/medical record restoration/ credit monitoring, coverage for notification/ monitoring on a number of notified individuals, contingent business interruption as well as extra expense, and comprehensive cybercrime coverage including funds transfer fraud and social engineering.
- Regulatory liability from billing errors and omissions. Coverage includes attorney fees, external auditor and medical expert costs associated with defending these claims as well as fines and penalties and damages.
- Directors and officers liability, which covers officers and director of a corporation or managing partners in a partnership, protects from liabilities related to operating and managing a business.
- Employment practices liability protects against claims for such employee allegations as wrongful termination, wage and hour disputes, discrimination, harassment, or retaliation. These could be covered under the medical malpractice policy or general liability policy, Kalogredis added. Approximately seven years ago, Dr. Prather’s group purchased supplemental insurance for cyber liability because they believed the risk has the potential to shut down the practice. Dr. Tolkachjov’s practice has supplemental coverage for cyber attacks, privacy breaches, and regulatory audits. “It’s important to understand what kind of medical malpractice coverage is being provided under your policy,” Kalogredis concluded. “It’s important to read the policy or hire someone you trust to read it, so that you get the coverage you need.”
An umbrella policy for medical malpractice or personal liability?
An umbrella policy is over and above the basic insurance, Kalogredis explained. “If you have $1 million per occurrence and $3 million in aggregate coverage for medical malpractice and the same for personal liability, and you want more than that,” he said, “you purchase an umbrella policy to provide incremental coverage.” There are pros and cons to doing this for the malpractice insurance versus personal liability coverage. “If an individual is personally liable and the insurance limits don’t cover the claim, then the doctor will be individually liable for the difference,” Kalogredis explained. For example, if the patient sues the doctor for $2 million and the physician has $1 million per occurrence coverage, that leaves $1 million not covered by insurance. The patient can go after the doctor’s personal assets. In essence, an umbrella policy covers if the judgment against the doctor exceeds the coverage they have with basic insurance. It’s wise to speak with local counsel about the best way to protect assets in your state, Kalogredis said, as the rules vary from one jurisdiction to another. (To learn more about this, look for next month’s Money Matters column.) “The idea of personal liability and umbrella coverages is to cover your exposure and protect your limits,” Brown said. “Weigh your net worth and your exposure. It is worth protecting your business and your personal assets.”
What to ask the insurance carrier
“Dermatologists should know about the carrier as well as the coverage,” Brown said. She offered the following key questions that dermatologists should ask the insurance carrier:
- Does the carrier specialize in medical professional liability?
- How long has the company been in business?
- What is the carrier’s market share, member count, or number of policy holders, and total gross written premium?
- What is the carrier’s asset size, surplus, and ratings from A.M. Best, Fitch, and Standard & Poor’s?
- What services does the carrier provide to its members or policy holders? What value-added services does it offer for patient safety? What claims services does it offer and what is the process for reporting an incident or a claim?
- How does this carrier differentiate itself from their competitors?
- What is covered in the policy and what is excluded? How does this compare to other carriers?
- Is this a claims-made policy? Am I covered for my prior acts?
- Is the claims trigger incident sensitive or written demand?
- Does this policy offer consent to settle? If so, is there a hammer clause?
- Are defense costs in addition to the limit of liability of the primary policy or do they erode the limit of liability?
- Is my entity covered under this policy as well as any mid-level employees?
- Are all employees, contracted workers, and volunteers covered under this policy? Does this policy afford coverage for any locum tenens?
- Am I covered for my work on committees acting on behalf of the named insured (e.g., credentialing, peer review, and medical ethics)?
- Does the policy provide coverage for any Good Samaritan acts?
- What are the terms of the extended reporting coverage if I choose to leave the practice, die, or retire? Are there any other benefits afforded to me when I leave the practice, die, or retire?
Vasilios (“Bill”) J. Kalogredis, Esquire is Chairman of Lamb McErlane’s Health Law Department. Bill has been practicing health law for over 40 years, representing exclusively physicians, dentists, group practices, other health care professionals and health care-related entities.