Non-standard physicians and surgeons are practicing doctors who have had claims frequency or severity issues, board actions or have been, or are currently on probation. It can often be difficult for non-standard physicians to find affordable malpractice insurance coverage because they are considered a higher risk by insurance companies. This blog post addresses what physicians need to consider when purchasing professional liability insurance. As you review the information below, please bear in mind that insurance is a highly regulated industry that varies from state to state. As such, all coverages referenced may not be available to all physicians.

# 1 Financial Strength/Rating of the insurance company: Insurance company (carrier) ratings are determined by A.M. Best and can be researched at www.ambest.com or on the website of the carrier. These ratings can be tied to the economy and general investment trends. At the time this blog post was written, many insurance companies have encountered financial challenges and consequently, their ratings have fluctuated.

# 2 Occurrence and Claims Made: The two main types of malpractice insurance are occurrence and claims made. Occurrence insurance covers the physician regardless of when the claim is reported. With claims made coverage, the incident must be reported while the policy is in force (again, this is typically for a one-year term) and have occurred during the period of time covered by the policy.

Prior Acts or “Tail” Coverage: Physicians on claims made policies should make sure that prior acts or tail coverage is provided allowing the physician to be protected after the policy period is over. It is important to evaluate the financial strength, longevity and track record of the carrier to ensure it has the wherewithal to provide prior acts or tail coverage.

# 3 Consent to Settle Clause & “Hammer” Clause: It’s in the physician’s best interest to purchase a policy with a “consent to settle” clause which requires the carrier to obtain the covered doctor’s written permission to settle a claim against him or her. If not, the carrier can settle a claim that the physician may believe is very defensible – without permission.

A “hammer” clause is one in which the insurance company must obtain written permission to settle a claim against the insured doctor BUT THAT PHYSICIAN IS RESPONSIBLE for all costs exceeding the amount of the settlement proposed by the carrier if the covered physician does not agree to that settlement. If the insured pushes the case to trial and wins, he or she avoids having the proposed settlement becoming a permanent part of their claims history. But if the insured loses — he or she will have to pay the difference between the amount of money the case could have been settled for and the actual costs of awards and extra defense expenses.

#4 Defense Costs “Inside” vs. “Outside” Policy Limits: If a policy pays defense costs “outside” the limits of liability then the defense costs do not erode the limits of liability of the policy. For example, if the policy limits are $1 million per occurrence and $3 million aggregate and the defense costs for a case are $100,000, the covered physicians would still have $1 million to cover a potential award for that claim. If the policy pays defense costs “inside” the limits of liability then the insured would have only $900,000 left to cover a potential award in the previous example. Clearly, it is preferable to purchase a policy with defense costs “outside” the limits of liability.

#5 Incident Reporting vs. Written Demand for Damages: How each insurance company defines a “claim” is another important consideration when comparing policies. “Incident reporting” allows the physician to report an adverse outcome to the carrier as a potential claim. This is important because remember that for a claim to be covered, a claims-made policy requires that the incident BOTH happen AND be reported as a claim while the policy is in force.

If an insurance company requires that the insured receive a “written demand for damages” in order to consider a claim to be reported, then the physician must wait to be sued before the claim is recognized. This can be a real problem for physicians wishing to change professional liability carriers because most insurance companies would decline to sell a policy to a physician who can expect to be sued in the future for past adverse outcomes. The carriers often consider such a situation to be the same as “buying future claims” which is a financial risk they would avoid in almost all cases.