Thomas B. Fleeter, MD

Medical liability insurance policies come in two forms—claims-made and occurrence coverage. Understanding the difference between them is critical to ensuring that you have adequate protection in the event of a medical liability lawsuit.

A claims-made insurance policy covers costs related to a lawsuit, provided that both the incident and the filing of the claim occur while you are insured under the policy. An occurrence policy covers any incidents that occurred while you were insured by the policy, regardless of when the claim is filed and even if that insurer no longer covers you.

Today, most medical liability insurance policies are claims-made policies. As long as you continue to practice in the same jurisdiction and renew your coverage annually, you are covered for claims made during the term of the policy. However, if you leave your current practice, relocate your practice, or retire from practice, your insurance coverage may lapse.

To maintain protection in the event of a lawsuit, you may need to purchase a supplemental insurance or “tail” policy. Tail coverage is an extended reporting endorsement for an existing claims-made medical liability policy. Tail policies cover claims filed after the existing claims-made policy expires. Tail coverage protects you for events that occurred while your policy was in effect, even though the actual claim was filed after the policy lapsed. They do not provide coverage for acts that occur during the time period of the tail policy known as the extended reporting period.

Premiums for tail insurance coverage are generally 150 percent to 300 percent of the most recent policy premium. For physicians in high-risk specialties, a tail policy may cost in excess of $100,000. Tail coverage is expensive because it covers future claims that may not appear for several years.

Some insurers do offer long-term policyholders free tail coverage upon retirement, death, or disability. However, if you relocate, change practice situations, or become a hospital-employed physician, you may need to purchase a tail policy, especially if you move to an area where the current insurance company does not do business.

So what options do you have to reduce the likelihood that you or your practice will have to purchase expensive tail insurance out of pocket? Consider the following scenarios.

Employed physicians
If you are thinking of becoming an employed physician, you need to be aware of both your current and future tail coverage provisions. Any physician-employee would be well advised to ensure that tail coverage will be provided and at what cost after his or her employment has ended.

It is possible that your new employer may agree to purchase a “nose” policy, which covers prior acts. Nose coverage is purchased from the new insurance carrier and covers incidents that occurred before the beginning of the new relationship but for which no claim has been made.

However, if you are moving from an area with high medical liability costs to one with lower costs, a nose policy may be prohibitively expensive. Before you decide to move, evaluate your medical liability insurance costs. Insurance companies are more likely to offer prior acts coverage in areas that have significant competition among insurers.

Before signing any employment agreement, make sure that it details the costs of leaving employment, including the responsibility for a tail policy. Although some employers will agree to cover the cost of the tail, many may not let you leave before your contract expires without requiring you to make some prepayment. The tail policy may be part of this payment. The employment agreement should include a formula for amortizing the cost of the tail coverage in the event that you leave the practice prematurely.

Tail or nose coverage is worth purchasing, despite the expense. Defending against one or more medical liability suits is extremely costly and could be lifestyle changing, and as a result, it is best to plan ahead for the possibility. Ask your insurer if you can arrange for a payment plan. Ask any new insurer about the availability and cost of nose or tail coverage.

Physician employers
If you are a member of a physician group, you should realize that tail coverage could be handled in a number of ways. An obvious option would be for the group and the departing physician to split the cost. But, depending on the terms under which the employee departs, the financial responsibility for the cost of coverage may shift. For instance, if you leave voluntarily, you may be responsible for the tail, while the group may be responsible for purchasing coverage if you are terminated. Other options are also available, including phasing in responsibility for the tail cost based on the length of employment.

Buyouts of partners from the group can also be affected by the costs of tail policies. Some groups require the departing physician to use part of the separation costs to pay for the tail coverage.

Lastly, physician groups must have a way to ensure that the departing physician actually obtains and pays for a tail policy. If the employee leaves but fails to obtain a required tail policy, the physician group may have legal exposure.

As previously mentioned, many medical liability insurers will give long-term insured physicians a free tail policy. Groups, however, especially those located in states with high medical liability premiums, may try to save money by changing insurers frequently. As a result, their physicians may not be eligible for the free tail coverage.

Summary
The dynamic employment changes facing orthopedic surgeons today adds complexity to medical liability coverage. To protect yourself, make sure that your liability coverage does not lapse, regardless of the changes in your employment status, and be aware of your tail coverage options.

Thomas B. Fleeter, MD, chairs the AAOS Medical Liability Committee. He can be reached at bonedock@comcast.net

Editor’s Note: Articles labeled Orthopaedic Risk Manager are presented by the Medical Liability Committee under the direction of contributing editor David H. Sohn, JD, MD.

Articles are provided for general information and are not legal advice; for legal advice, consult a qualified professional.

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