Are you looking to switch medical practices? Are you in the market to purchase a professional malpractice insurance policy? Are you planning to retire soon? If you answered ‘yes’ to any of these questions, you will likely confront the concept of “tail” insurance.
Now is the time to dust off your employment agreement and professional liability insurance policy and review what happens in the event a lawsuit is filed against you after you leave your current employment. This means paying special attention to whether your professional liability insurance policy provides for claims-made or occurrence-based coverage, and if it’s the former, determining who is responsible for purchasing tail coverage.
Why You Need Tail Coverage
Claims-made coverage protects against professional negligence as long as a two-part test is met: First, you must have the claims-made coverage in place when the negligent act occurs at practice number one and, second, you must be covered by the same carrier when you are notified of the claim while employed by practice number two. If either test is not satisfied, the current claims-made insurance policy will not provide coverage in the event you are sued for an act of negligence that took place while you were employed by practice number one. If you leave a practice that has occurrence-based professional liability insurance, on the other hand, insurance coverage is seamless, and no tail insurance is required. The majority of insurance policies written for medical practice groups are for claims-made coverage, however.
Take this example: An ENT practice maintains claims-made professional liability insurance coverage for its physicians with ABC Insurance Co. A physician decides to leave the practice and is now employed by a new practice, which maintains claims-made coverage with XYZ Insurance Co. Within a few months of the physician’s new employment, a lawsuit is filed for a procedure performed by the physician while he or she was employed by the former practice. By leaving the former practice, the departing physician automatically fails the two-part test for claims-made coverage; the second prong is not satisfied. Therefore, even though the physician has liability coverage through the new employer, this insurance policy will not cover the lawsuit described above.
Now is the time to dust off your employment insurance policy and review what happens in the event a lawsuit is filed against you after you leave your current employment.If claims-made insurance is the benefit you have received in your employment agreement, it is imperative that you acknowledge that tail coverage is necessary when you leave the practice. If you leave the practice and join another practice within the same state and stay insured by the same insurance carrier, however, the insurance carrier will provide continuous coverage, and no tail insurance policy is needed.
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.