Who’s Covering Your Tail? The ins and outs of professional liability insurance

If you do need tail coverage, the next step is determining who should pay for such coverage. The first option is to attribute the cost of tail coverage 100 percent to either the physician or the practice. In specialties where recruitment of new physicians is challenging, employers may be more likely to pay, as a benefit or inducement, a substantial portion, if not all, of the cost. You should discuss this while negotiating your employment agreement.

Another option is to connect the payment of tail coverage to the manner in which you terminate your employment. For example, if you terminate the agreement for cause, or if the practice terminates your employment without cause, the practice may be required to pay for tail insurance. Alternatively, if you terminate the agreement without cause, or if the practice terminates your employment with cause, you may be required to pay for tail coverage. Frequently, physician employment agreements require physicians to pay for tail coverage if the physician violates a restrictive covenant (e.g., non-competition agreement).

A third option is to split the cost of tail insurance between the practice and the physician based on a percentage or to include a vesting schedule such that the practice pays one-third of the coverage if employment ends in the second year, two-thirds of the coverage if employment ends in the third year and all of the coverage if employment ends in the fourth year or later.

Any arrangement the parties agree upon should be included in the physician’s employment agreement in order to prevent an expensive surprise.

Review Your Policy

When reviewing your current policy, look for answers to the following questions:

• Is the policy claims-made or occurrence-based?
• Does your policy cover claims of unprofessional conduct reported to state medical licensing boards or punitive damages, intentional misconduct or contractual indemnity claims?
• How is loss defined? “Pure loss” is coverage for the amount awarded to the plaintiff. “Ultimate net loss” covers what pure loss covers plus attorneys’ fees and costs.
• What procedures do you need to follow in order to properly notify the insurance carrier of a claim? Are you precluded from full coverage if you fail to properly report?
• Will you be reimbursed for lost wages for your time in court? What services will be provided as part of your defense?
• If the plaintiff and insurance company negotiate a settlement and you do not consent to the settlement, will you be responsible for the ongoing defense costs and the amount of any verdict in excess of the recommended settlement amount?

Steven M. Harris, Esq., is a nationally recognized health care attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at sharris@mcdonaldhopkins.com.