In this blog post, we make sense of Occurrence Policies and Claims-Made Policies. We also clarify Tail Coverage and Nose Coverage.
Occurrence policies represent the broadest and most thorough form of medical malpractice insurance available; this, of course, also means that occurrence policies tend to have the highest premiums. Under an occurrence policy, the insurer will cover any claim arising out of an incident that occurred while the policy was in place, regardless of when the claim is actually made.
For example, if an incident occurs this year, but a claim is not made until next year, the claim will be covered under an occurrence policy, regardless of whether the doctor has switched carriers, retired, or otherwise terminated the policy. Obviously, this is good for doctors in that it precludes the need for nose or tail coverage (see below), however, because of the inherent difficulty and risk associated with projecting future claims reported, the insurer has to charge more.
In addition to occurrence policies, claims-made policies are the other primary form of broad medical professional liability insurance and are the most common types of malpractice policies issued. Under a claims-made policy, coverage is provided for incidents that occurred between the retroactive date (typically the date the doctor began the policy) and the termination of the policy. In other words, once the policy is terminated, a claim arising out of the policy period is not covered. However, there is a little more to it than that.
Medical malpractice policies vary in terms of what the insurers accept as reporting an incident for the purpose of securing coverage. On some policies, if the doctor simply alerts the insurer to a possible claim, or a suspected future claim, that claim is then covered should it arise, even after the termination of the policy. Other policies only consider coverage to be triggered by an actual claim made by a third party with a demand for monetary payment. Further, while claims-made coverage is somewhat narrower in scope than occurrence, the cost is also lower, especially during the first few years when the risks of a claim are the least. Typically, the first year premiums on a claims-made policy are relatively minimum (as the period of time during which an incident could occur and a claim arise are minimal) with the premiums increasing at a graduated rate over the course of 5-7 years, after which the risk is deemed mature and premiums level off.
The reason claims-made policies came into being, and have since become the most popular type of policy, is because they avoid many of the complications that can be associated with trying to file a claim with a previous insurer. In some cases, claims do not come up for many years after the incident occurred (particularly when the statute of limitations is based on the date of discovery rather than the date of the incident) and a doctor may have since changed insurers multiple times, and/or the insurer may not have the funds to cover the liability or even be in existence. Claims-made policies (combined with prior acts coverage or an appropriate retroactive date) avoid these complications by allowing a claim made to be covered by the doctor’s current insurer.
Extended Reporting Period (Tail) Coverage and Prior Acts (Nose) Coverage
Of course, under a claims-made policy you may have noticed that there is a potential for a gap in coverage. What about claims that arise after the termination of a policy? That’s where nose and tail policies come in. A nose, or prior acts, or retroactive policy is designed to cover claims arising out of incidents that occurred prior to the current policy period. Often when switching carriers this type of policy will be offered by the new insurer to offset the cost and risk of the move. Tail, or extended reporting period policies are similar in that they are designed to cover any claim arising out of an incident that occurred in the past. Tail policies are often issued at no cost by insurers to a doctor whose policy is terminated due to death, disability, or qualified retirement.
Occurrence, claims-made, nose, and tail are the most common types of medical professional liability insurance issued. There are others, such as claims-paid, modified occurrence, and so on, but they are less common and are typically a hybrid of two or more of the types we’ve discussed. Discerning which type of policy is right for you can be a challenge, which is why the help of a trusted broker is so valuable. Not only can a broker help you determine which policy will provide you with the best coverage at the best value, but he can also insure that you are always covered and that no potential liability falls through the cracks in terms of your coverage.
Next time, we’ll look at who needs medical professional liability insurance and the different ways of securing it.