Considerations For Medical Malpractice If You Are Working As An Independent Contractor

By Christian Amabile

Independent Contractors

Many of the physicians that we work with and assist in becoming independent contractors have never practiced independently before in their careers. Thus, they have never gone through the process of obtaining their own medical malpractice insurance. When first purchasing medical malpractice insurance on your own, it is important that you understand the differences between the forms of coverage that are available to you, as it could have significant impacts on your practice, and can be difficult to switch once started.

Claims-Made

Claims-Made - The policy in force today / when the claim is made, responds to the claim.

Let’s say a physician has a claims-made policy, with a retroactive date in 2018. If that physician submits a claim today for a patient treated in 2020, the policy today (and the carrier today) would cover that claim. A claims-made policy covers claims if they are:

• Reported during the current policy period.
• Triggered by an event that occurred on or after the policy’s retroactive date.

The date a physician first starts a claims-made policy becomes their “retroactive date”. In most cases, this date will appear on subsequent claims-made policies. The portability of claims-made policies is possible through the transfer of a retroactive date, which equates to “prior acts” coverage. Prior acts coverage allows physicians to transfer potential past unknown liabilities from one carrier to another.

A claims-made policy will start off at a low premium, but the premium will increase annually until that policy reaches “maturity”. This occurs because a claims-made policy covers a larger span of time year by year, which increases the likelihood of a claim that the policy will have to react to. A claims-made policy typically becomes mature after five years. After that, the premium will stay level with all other variables constant. A mature claim-made policy will cost roughly the same as an occurrence policy.

If a physician stops practicing medicine and/or stops renewing a claims-made policy, that physician will need an extended reporting endorsement known as “tail coverage”. Most carriers will offer free tail provisions, provided a physician fulfills that carrier’s requirements. Typical requirements include: needing to be insured with that carrier for a certain number of years, over a certain age, and full retirement from medicine. If a physician cancels a claims-made policy without meeting these terms or without having a new policy covering his/her prior acts, a tail will need to be purchased. Tails can be quite expensive, and cost over 2x a physician’s expiring premium. If a claims-made policy is canceled and there is no tail purchased or provided, there would be no coverage in place back to that physician’s retroactive date.

Pros For Claims-Made

Pros for Claims Made Coverage:

• Premium rates are very low in the early years of claims-made coverage.
• All medical malpractice insurance carriers will offer claims-made policies.
• If your current carrier has financial issues, you can transfer the liability to a stronger carrier with ease.

Cons For Claims-Made

Cons for Claims Made coverage:

• It is not as easy to switch carriers as some other forms of coverage.
• If your current carrier has financial issues, the new carrier may not be willing to pick up your retroactive date.
• If you switch carriers close to retirement, you will have to start over with the new carrier’s free tail provision requirements to receive a free tail.
• The cost of a tail could be over 2x your expiring premium.
• You have one set of limits that cover you from your retroactive date until today.

Occurrence

Occurrence – The policy in force on the date of the event / when the event occurred, responds to the claim.

Let’s now say that the same physician has had occurrence policies since 2018. If that physician were to submit a claim for a patient treated in 2020, that physician’s policy from 2020 (and carrier from 2020) would cover the claim, regardless of whether that physician is still insured by that carrier or even has any current policy in place. An occurrence policy covers claims if they are:

• From an event that occurred during the time a physician had an active occurrence policy.

There are no retroactive dates or tails associated with occurrence policies, as coverage for each occurrence policy year will remain in place indefinitely, or until the limits are exhausted.

Occurrence is looked upon as the superior coverage form, as it gives you the most amount of coverage. Each policy year has its own set of limits, as opposed to a claims-made policy, where one set of limits covers a physician back to their retroactive date.

Pros For Occurrence

Pros for Occurrence coverage:

• You have a separate set limit for each policy year.  
• There is no tail to purchase or prior acts needed.

Since there is no tail to purchase or prior acts needed, it is easier to switch from one carrier to another.

Cons For Occurrence

Cons for Occurrence coverage:

• If you purchase occurrence coverage from a carrier that becomes insolvent (goes out of business), you are only covered to the limits of the state guarantee fund (this can differ by state).
• Occurrence usually costs more.
• Not as many insurance carriers will offer occurrence coverage because they are liable for that policy indefinitely.

Modified Claims Made

Modified Claims-Made – Reacts like a claims-made policy but is paid like an occurrence policy. The tail is basically pre-funded, so you do not have to purchase a tail. Many carriers have names such as “permanent protection policy” or “claims-made plus”.

Pros For Claims Made

Pros for modified claims made coverage:

• There is no tail to purchase.
• Since there is no tail to purchase, it is easy to switch from one carrier to another.

Cons For Claims Made

Cons for modified claims made coverage:

• Like a standard claims-made policy, one set of limits covers a physician from his/her retroactive date until today.

Modified claims-made coverage usually costs more than a standard claims-made policy, since the tail is pre-funded. If you plan on utilizing a free tail provision, a standard claims-made policy will cost less.

I highly recommend working with a professional who specializes in medical malpractice insurance, as it functions differently than most insurances, in the sense that claims can lag years after the actual “loss” occurred.  We are here to help you in any way that we can through all of the processes of becoming an independent contractor.

Thank you!

You can contact Christian here for a free quote or if you have any questions.

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