When a practitioner switches practices, who pays for tail coverage?
Medical liability policies come in two basic forms—occurrence and claims-made. An occurrence policy covers the insured for events that occurred during the policy dates, regardless of when the claim is filed. Under a claims-made policy, however, both the event and the claim must be reported while the policy is in effect.
For example, if a surgeon had an occurrence policy covering the year 2008, a claim filed in 2010 for an event that occurred in 2008 would be covered, even if the surgeon switched insurance companies or let the policy lapse.
Under a claims-made policy, however, the surgeon would be protected only for those events that occurred and were reported while the policy was in force. Thus, if the surgeon switched companies or let the policy lapse, and a claim was filed in 2010 for an event that occurred in 2008, the surgeon would not have any protection.
Hence the need for the extended coverage called a “tail.”
Tail coverage is pricey
More medical liability insurers are switching from offering occurrence policies to claims-made policies, which enable the company to re-adjust premiums if loss ratios increase. This places a greater burden on physicians to pay for coverage if they change practice situations or retire.
Most carriers will automatically provide tail coverage to individuals who have been insured for a certain number of years, have reached a certain age, and are retiring or leaving practice due to disability. If, however, an individual joins another practice or moves to another state, the issue of who pays the tail may become significant.
Generally, the cost of tail coverage is 150 percent to 300 percent of the premium of a mature policy. For example, an orthopaedic surgeon who normally pays $50,000 for claims-made coverage ($1,000,000 per occurrence/$3,000,000 aggregate) would pay a tail premium of $150,000. For a young orthopaedic surgeon who leaves a group to go out on his own, this cost can be devastating.
“Most surgeons are unaware of what a tail is really going to cost them,” said Prem Belani, president of Pri-Med Consulting, an independent insurance broker who works with many New Jersey orthopaedic surgeons. “They have no idea that their current claims-made medical liability coverage doesn’t cover future claims. They may not fully comprehend the way a claims-made policy works and, unfortunately, they find out the hard way.”
Mr. Belani tells of one client who left a practice after just 2 years to join another group. The upfront cost for tail coverage for his previous group policy was $63,000.
Who should pay?
Tail coverage can also be a problem for the group that is losing a member. In many instances, the responsibility for paying for the tail coverage is not assigned. Groups that switch from an occurrence policy to a claims-made policy may have no provision for tail payments in their charter or operating agreement.
Theodore J. Clarke, MD, chair and CEO of the Colorado Physicians Insurance Company (COPIC), knows of two such episodes.
“In one six-surgeon group, one of the partners decided to move to Australia and gave the group just 6 weeks notice. He thought that his medical liability was covered and he could safely move half a world away,” said Dr. Clarke. “The group had never considered the possibility and didn’t even know the corporation’s liability for a suit against one of its members. It took a lot of negotiation, but in the end the surgeon agreed to pay the $70,000 tail premium, even though he was leaving the country.”
In another case, however, the group was left with the bill. “The insured was part of a four-surgeon group and absolutely refused to pay the $60,000 tail,” said Dr. Clarke. “Fearing that the corporation would be exposed, the group members chipped in to cover the cost.”
The laws on whether a group can be held liable for care provided by a member vary from state to state. In some states, such as Colorado, the burden of a malpractice judgment falls squarely on the individual practitioner even if the group is sued. In other states, the entire corporation may be exposed. Sometimes group members may have participated in the case by providing weekend coverage, assisting at surgery, or doing something as simple as phoning in a verbal order. It is critical, therefore, that all members—including those who are no longer part of the group—are protected against future claims.
Perhaps the best solution, notes Dr. Clarke, is for everyone to work out an agreement beforehand. “I suggest to residents that they consider working out a sliding scale tail policy with the group they are joining,” he said. “A new member who leaves after 1 year, for example, might pay 25 percent of the cost and the group pays the remaining 75 percent. The percentage for which the member is responsible would increase until he becomes a partner, at which time he would pay the full tail coverage if he were to leave the group. The point is to discuss it and have a solution before a problem arises.”
Stuart J. Fischer, MD, is a member of the AAOS Now editorial board. He can be reached at email@example.com
Editor’s Note: Articles labeled Orthopaedic Risk Manager are presented by the Medical Liability Committee under the direction of contributing editor S. Jay Jayasankar, MD.
Articles are provided for general information and are not legal advice; for legal advice, consult a qualified professional.
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