Make sure you can get tail coverage if you need it

October 8, 2010

Leaving a group, employment, the state. Dying, becoming disabled or retired. If you have claims-made insurance, these are all occasions when you likely will need "tail coverage."

Key Points

Under a standard occurrence policy, you are covered for an incident that occurs during the policy year regardless of when it is reported. Under a claims-made policy, you're covered only for incidents and claims that occurred and were reported during the policy year. Essentially, tail coverage is extended liability insurance that provides coverage against claims reported after your policy would have expired.

Claims-made coverage usually is less expensive than occurrence coverage in the earlier years of the policy. In the first year, the premium for claims-made insurance would be about half to two-thirds of the premium for an occurrence policy. At about the fifth year, the premiums would be roughly equal because claims would start to be reported. After you retire, however, the claims-made premium could be 150% to 200% of the occurrence rate.

If you change practices or take a temporary absence and do not purchase tail coverage, a gap in coverage could occur. Such a gap could come back to haunt you when you apply for a job, privileges, or even licensure. To maintain uninterrupted coverage, purchase tail coverage from your previous insurer or a "nose policy" (prior acts coverage) from a new insurer. It's difficult to purchase a nose policy unless you have continuous and uninterrupted coverage. Many insurers are reluctant to offer prior acts coverage to protect against lawsuits that occurred at an earlier time, when the doctor may have been with a group that also will be named or in a state with which the insurer is unfamiliar. If such a policy is available, it can cost 2 to 3 times as much as an occurrence policy.

GET IT IN WRITING

Whenever you enter into employment, a group practice, or other practice arrangement, make sure your contract addresses the issue of tail coverage. Negotiate skillfully. If you will be an employee, your best argument may be the legal principle of "respondeat superior," in which the employer is responsible for the acts of the employee when they are performed in the scope of employment. If a judgment against you occurs, the employer may have to pay and maintains a right to recover that amount from you.

All too often, initial contract agreements are silent about tail coverage. It's very common for tail coverage to be disputed after an agreement is terminated. If your insurer specifies a time limit for the offer of the tail coverage, resolve the matter expeditiously.

TAIL COVERAGE FREE?

Find out from your malpractice insurance carrier whether you are entitled to free tail insurance. Insurers often provide tail coverage at no extra cost when a practitioner dies, becomes permanently disabled, or completely retires, provided the doctor is of a certain age and was insured under a claims-made policy for a specified period beforehand. The age requirement usually is 55 or 60 years, and the length of the insurance requirement may be 10 or 20 years.

If you have not contracted for coverage and are not eligible for free tail coverage, you may be tempted to practice without insurance because of the cost of tail coverage. Unless you have a very strong tolerance for the risks involved in self-insuring, however, it may be better to pay the premiums. Tail coverage may be expensive, but it's not as expensive as not having it when you need it.

The author is a health law attorney in Mt. Kisco, New York, and a Medical Economics consultant. Malpractice Consult deals with questions on common professional liability issues. Unfortunately, we cannot offer specific legal advice. If you have a general question or a topic you'd like to see covered here, please send it to medec@advanstar.com