Nearly half of all physicians in the U.S. are employed by hospitals, according to the Government Accountability Office (GAO). If you’re one of those physicians, you might assume that your employer’s hospital professional liability insurance covers you against malpractice claims.
Even if you’re not technically an employee but work for a hospital as an affiliate or consultant, you might think the hospital’s insurance will protect you if you’re sued for malpractice by a patient you treated under the facility’s auspices. Such assumptions could cost you a lot.
Although the frequency of malpractice claims remains fairly stable, the ever-rising payouts have led to stricter underwriting and fewer reinsurers, the organizations that help handle risk for the primary insurance firms.
This results in a hard insurance market, with higher premiums and more restrictive coverage terms. It’s also symptomatic of a structural breakdown in the entire hospital liability insurance structure, one that is reshaping general liability insurance for hospitals, and for physicians as well.
In the meantime, just as insurers are pushing more risk onto hospitals, hospitals are pushing more malpractice risk onto their employee and affiliate physicians. As a disruptor in the field of medical malpractice coverage, Indigo continues to stay on top of these market dynamics and what they mean to you as physicians.
Below, we’ll clarify today’s layered hospital professional liability (HPL) insurance coverage, how it’s changing, and why, if you’re not carrying sufficient independent malpractice coverage, you might now be wide open to risk.
Hospital liability insurance is a type of commercial business insurance that helps protect a hospital from a patient’s claims, or the claims of the patient’s estate, of bodily injury resulting from treatment decisions, errors including omission of treatment, or negligence on the part of the facility. Like malpractice insurance carried by physicians, it typically covers legal defense costs, out-of-court settlements, and court judgments.
HPL insurance typically covers employees to a degree. But depending on the type of coverage the hospital carries, physicians could be responsible for paying their own defense costs and payouts if they are cited by name in a lawsuit.
What’s more, employee physicians who moonlight at a clinic, for instance, or volunteer at a shelter are not covered for any services they perform outside of the hospital’s auspices. Besides knowing what sort of protection the hospital professional liability insurance offers them, employees need to know whether their hospital purchased the insurance on a claims-made or an occurrence basis.
The more common claims-made insurance protects the organization only if the policy is active when both the medical incident and the claim occur. Say the hospital held a claims-made policy with insurer A from January 2021 through December 2023; the incident occurred in 2022 but a suit wasn’t filed until 2024, the insurance would not provide protection.
An occurrence-based policy covers the hospital for any incidents that take place during the time the coverage is valid, regardless of when a claim is filed or if the hospital subsequently switched to another insurer.
For physicians, that means if their hospital has claims-made insurance, they could be liable for malpractice even after they’ve left the organization’s employment. For that reason, the physician would need to buy tail coverage prior to leaving the hospital’s employ to retain protection against retroactive claims.
What’s more, many physicians may consider themselves hospital employees and are given some of the same perks as employees but are technically independent contractors and therefore not covered by the hospital liability insurance. Simply having admitting or surgical privileges does not equate to HPL coverage.
You might assume that a hospital buys one comprehensive insurance plan, and that’s that. In actuality, hospital professional liability insurance encompasses a multilayered structure. Each layer is load-bearing: Should one fail, the risk cascades down not just to the hospital but to the physicians as well.
The primary or base layer typically covers hospitals for up to several million dollars of medical malpractice liability and general liability, such as damage to a patient’s belongings or a sprain incurred by a visitor who fell on the premises.
In its primary policy, a hospital typically includes self-insured retention (SIR), a dollar amount that it, rather than the insurer, will pay for handling claims. If a hospital self-insured retention is $500,000 per claim and the defense and indemnity costs for a claim are $750,000, the hospital pays the initial $500,000 and the insurer the remaining $250,000. Retaining an SIR is similar to carrying a high deductible in that it lowers premium costs, though with a deductible the insurer pays the initial costs and then bills the hospital for compensation. Here the hospital pays the initial costs itself. An SIR also gives the hospital, not the insurance company, control over defending and settling claims, at least until the costs exceed the retention limit.
On top of the primary layer of insurance, a hospital buys excess layers that go into effect only after claims have exceeded the coverage of the base policy. These policies typically “follow form” in that they have the same terms of the primary hospital liability insurance policy, in essence extending the liability limits of that base insurance while spreading the risk among insurers.
Let’s say a claim comes to $7 million but the primary policy has a $5 million limit. Without excess liability insurance, the hospital would have to pay the remaining $2 million out of pocket; if it has excess layer coverage for claims over $5 million up until $10 million, the secondary insurer pays the additional $2 million.
Some supplemental insurance can also be considered excess layers. These include cyber liability insurance for protection against claims of HIPAA violations or data breaches, environmental liability insurance to cover costs resulting from improper medical waste disposal, and employment practice liability insurance to protect against employee claims of sexual harassment, discrimination, or unlawful termination.
Umbrella insurance is the top layer, offering protection when claims exceed the limits of all the lower layers. This coverage is broader than that of excess liability coverage, even “dropping down” to pay for otherwise-uncovered claims. Of course, this safety net costs hospitals more than excess liability coverage, which is why it’s used in conjunction with rather than instead of other types of insurance.
Then there’s reinsurance, the protection that insurers buy so that catastrophic claims do not wipe them out. In effect, reinsurance is insurance for insurers. As the number of reinsurers decline, premiums for primary, excess, and umbrella insurance rise and policies become more stringent and more difficult to obtain. Hospitals react by shifting more of the risk onto practitioners. For instance, they might lay off staff physicians and instead rely on independent contractors whom they do not have to carry on their policies.
Nuclear verdicts are jury awards that exceed $10 million. Once a rarity, they’re becoming almost routine and continually getting larger. One study found that in 2023, 50% of all nuclear verdict malpractice awards exceeded $25 million. According to another report, the average award of the top 50 medical malpractice verdicts in the U.S. was $56 million, a nearly 17% increase from $48 million in 2023 and up 75% from $32 million in 2022.
California, Florida, and New York accounted for most of these nuclear verdict malpractice awards, but other states are seeing record payouts as well. A judge in Utah, for instance, ruled against Seward Health Care, awarding $951 million to the family of a child suffering life-long injuries due to negligent care at birth.
To minimize their own risk, some primary insurance carriers are not only raising premiums but also lowering their coverage limits from, say, $20 million to $10 million. This subsequently requires hospitals to purchase additional excess liability policies.
Nuclear verdicts are contributing to social inflation in healthcare, which refers to insurance costs and jury awards rising faster than general inflation. Because factors include intangibles such as continually changing jury attitudes and variance in state regulations, pinpointing the exact healthcare social inflation rate is much more challenging than calculating overall inflation, which relies on tangible metrics. However, it’s agreed that healthcare social inflation is far outpacing overall inflation.
In fact, the difficulty in assessing and anticipating social inflation in healthcare is leading insurers to raise their rates, as well as impelling some reinsurers to exit the healthcare liability insurance sector altogether. Both of these actions subsequently contribute to more social inflation.
Companies in the healthcare reinsurance market, like insurers in general, require a degree of predictability in order to be profitable. Social inflation is far less predictable than the statistics that insurers rely on in risk analysis. That unpredictability, along with increasing nuclear verdicts and rising pharmaceutical and treatment costs, has contributed to three major reinsurers leaving the healthcare market in late 2025 and early 2026 alone.
Reinsurers are the backstop for primary insurers. A reinsurance market withdrawal and the accompanying decrease in reinsurers and reinsurance capacity means primary insurance companies have to shoulder more risk. To accommodate the added risk, primary insurers raise hospitals’ premiums, tighten limits, and increase attachment points, or the dollar threshold at which they’ll begin paying claims. Hospitals then have to seek out co-insurers and additional excess coverage.
Another way primary insurers pass risk along is by increasing hospital self-insured retentions. A hospital that had retained $1 million per claim might now find its insurers insisting on an SIR of $5 million or even more.
Although statistics regarding the number of annual sexual abuse and molestation (SAM) claims against medical institutes vary, the consensus is that it has risen significantly. While the actual instances of sexual assault might not be increasing, the reduced stigma around victims is contributing to a greater willingness to report SAM. And many awards go far beyond nuclear into thermonuclear territory: The University of Southern California paid more than $1.1 billion, for example, to victims of a gynecologist at a student health clinic.
The increases in claims and payouts are yet another factor causing reinsurers to pull out of the HPL market. Carriers are responding by restricting SAM underwriting, leading to low payout ceilings and high deductibles that render coverage all but unaffordable for many hospitals. Some primary insurers are eliminating SAM coverage altogether, forcing hospitals to purchase expensive standalone policies.
Reinsurance is the scaffolding that prevents the hospital liability insurance tower, with its multiple layers of coverage, from tumbling down. When it shrinks or disappears, the increased risk of primary insurers trickles down to hospitals and medical professionals.
To accommodate the increased burden of risk, a hospital has several options:
Whether you’re a hospital employee or an affiliated physician, you can no longer assume that the hospital professional liability insurance will offer sufficient protection for malpractice or other claims. Now that HPL policies carry higher retention rates and lower limits, employee physicians likely have greater personal exposure than they realize.
Similarly, many hospitals are tightening their credentialing requirements for independent and affiliated physicians, requiring that they carry their own tail coverage and take on more shared coverage.
If a hospital self-insured retention fund runs dry, the physician could face personal liability for claims. In addition, with an SIR the hospital is responsible for its own defense management. A physician, therefore, needs to know how well funded the SIR is and how it defends claims and handles legal costs.
Physicians named individually on an HPL policy typically have more protection than those covered vicariously. For instance, a hospital may not offer defense resources or other coverage for a physician who is individually named in a lawsuit but covered only vicariously on its policy, even if the physician is an employee, though such a situation is highly unlikely. Finally, contractors and affiliated physicians are rarely covered.
Should a self-insured hospital file for bankruptcy or be otherwise unable to pay for its defense and liability coverage, the physician usually has to assume the legal fees along with any settlements.
For their own protection, physicians need to carry individual malpractice insurance above that of the hospital’s layer. In fact, many hospitals will not grant admitting and other privileges to physicians who do not carry a specified amount of independent coverage, including tail coverage.
Is there even a consent provision? Do I have the right to consent or not consent to a settlement made on my behalf, or is this decision solely at the hospital’s discretion?
For a number of reasons, a hospital may be much more inclined to settle cases than to go to trial, and that means more risk of reporting to the National Practitioner Databank or the local state medical board, or both and these reports follow you for your entire career.
An increase in malpractice, cyber liability, sexual assault, and other claims, accompanied by soaring nuclear and thermonuclear verdicts, has led some reinsurers to curtail the amount of risk they’re willing to assume on behalf of insurance companies. In turn, these insurers are passing along some of the increased risk to hospitals.
As they struggle to deal with this growing HPL crisis, hospitals are forcing both employee and affiliated physicians to shoulder more of the risk. This includes limiting their indemnity of employee physicians and lowering payout ceilings. This means that physicians may need to add coverage to close any gaps, or carry certain coverage in order to retain privileges.
To understand their full exposure, physicians need to understand the overall market beyond individual medical liability coverage. And that requires working with a malpractice insurance firm like Indigo that has a full grasp of the entire insurance ecosystem.
Contact Indigo today to learn more about Indigo’s comprehensive medical malpractice insurance policies.
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