Let me preface that the information shared on this site and especially on this topic should not be construed as the definitive authority on understanding the intricacies and nuances of malpractice insurance. For any nurse anesthetist who actually wants to get into the granularity of malpractice insurance, I’m going to have to refer you to the AANA Malpractice Resource Center. The purpose of this post is to share a basic and cursory introduction to understanding how malpractice insurance coverage works. This blog, which will posted in 3 separate posts, is the summation of a lecture I shared earlier in the year at a nurse anesthesia program.
There are generally three components one ought to be aware of when searching for malpractice insurance:
- Types of liability insurance
- Limits of liability
- Types of Insurance companies
Types of Liability Insurance
There are two types of liability insurance: occurrence (consumer friendly, but expensive) and claims made (cheaper plan, but not as consumer friendly). Occurrence coverage provides protection is if a malpractice incident occurs during the time in which you have coverage irrespective of when the reporting of the incident occurs. For example, let’s say you obtained coverage from January 1, 2018 to January 1, 2019 and an incident occurred on November 16, 2018. Whether the incident is reported on November 23, 2018 (which is within your policy period) or on July 1, 2019 (which is outside your policy period) is irrelevant due to the fat you have occurrence coverage. As a result, your claim will covered. In other words, with occurrence coverage, there is no deadline to report a claim.
On the other hand, claims-made coverage only covers the claim if the claim is reported DURING the policy period. This is a very important distinction to understand as it has major implications on how you’re covered when working private practice. With occurrence coverage, you have an unlimited amount of time to report a claim. Whether you report a claim within your policy period or outside your policy period, you will be able to tap into your insurance policy for help. That is NOT the case with claims-made coverage. The malpractice incident must occur within the policy period and the reporting of this claim must also occur within the policy period.
Using examples to illustrate how claims-made coverage works. Using the previous example, let’s say you’re carrying a claims-made policy from January 1, 2018 to January 1, 2019. Let’s assume an incident occurred on April 5, 2018 and you reported the claim on June 2, 2018. The claim will be covered as it occurred DURING the policy period and you reported the claim DURING the policy period.
Using the exact same scenario in the previous paragraph, let’s say the same incident occurred on April 5, 2018, but instead, you report the claim to your insurance company on March 1, 2019. Well, the claim will be DENIED because you reported the incident OUTSIDE the policy period (assuming you didn’t purchase a tail for extended coverage and this will be discussed further in the article).
As you can see, it’s very important to understand what type of liability insurance you’re purchasing because one of them forces you to be cognizant of the timeline in which you report a claim. However, insurance companies offer what is known as a tail, which is an option to extend insurance coverage for a period of time, for individuals carrying claims-made policies. In other words, a tail allows you to report a claim AFTER a policy period has ended. It should come as no surprise that there is a fee involved for individuals interested in adding a tail to their claims-made coverage.
Anyone who has started out in private practice and shopped for malpractice coverage will certainly know that there is a significant price difference between an occurrence and claims-made policy. An occurrence policy is more expensive because of the fact that you can report a claim outside of your policy period window. A claims-made policy is cheaper because the limits of obtaining insurance protection are more restrictive; that is, unless you purchase a tail, which often ends up being costly and can sometimes end up being the same as if you had purchased occurrence coverage in the first place.
The cost of a tail typically ends up being nearly 100% of the policy premium that one purchases for claims-made coverage. For example, if you purchased a claims-made policy that costs $1300 for the year, in order to obtain tail coverage, the cost for that tail would be ~$1300. It is important to know that malpractice insurance policy premiums increase the longer you practice because your risk for a malpractice incident increases. It should make intuitive sense because the more cases you do, the more likely you will come across an adverse event. The literature supports this intuition. According to the AANA Closed Claims database, approximately 30% of malpractice claims occur between the first and third year after an incident has occurred.
And this should be part of your cost benefit analysis. A claims-made policy typically starts off cheap early in one’s career, but as you practice longer, your annual premium increases, which subsequently increases your tail coverage. If your premium coverage for year 1 cost $1300, then year 3 may end up being $2000. Should you decide you want tail coverage after year 3, then the cost of that tail would be $2000. It should be noted that it is not compulsory to purchase a tail every single year you have a claims-made coverage. A tail is really only considered if you end up switching malpractice insurance companies or if you anticipate not working for a period of time outside of your policy period.
1. Consumer Friendly
2. Relatively expensive compared to claims-made (without a tail)
3. There isn’t a need to buy a tail
4. Reporting of a claim can occur during and after a policy period.
Claims Made Coverage:
1. Not consumer friendly
2. Relatively cheap compared to occurrence coverage
3. A tail can be purchased for extended coverage (which can be costly)
4. Reporting of a claim must occur DURING a policy period unless a tail is purchased.
Again, this isn’t an exhaustive discussion of the granularities between occurrence vs claims-made, but at least it provides basic framework with which to understand what type of coverage exists out there. The next blog post will focus on the limits of liability.