Insights on Claims-Made vs. Occurrence Malpractice Insurance

A professional liability policy is typically either occurrence coverage or claims-made coverage. Understanding the difference in these policy forms is important.

Understanding Claims-Made vs. Occurrence Policies

Key distinctions can be made between occurrence and claims-made medical professional liability insurance policies. An occurrence policy is triggered when the event giving rise to a claim “occurs” during the policy period. A claims-made policy is triggered when the claim is “first made” against the insured during the policy period, regardless of when the event giving rise to the claim actually occurred.

What Is an Occurrence Policy?

An occurrence policy provides coverage for an incident that happens or occurs during the policy period. This means that even if medical malpractice claims are brought years later, long after the policy period has expired, the coverage remains in effect. It’s essentially lifetime coverage for any claims arising during a particular policy period, subject of course to the limits of liability. The benefit of an occurrence policy is that it’s simple and it’s lifetime. If for some reason you change employment or change your insurance carrier, it doesn’t matter. As long as the event giving rise to the claim occurs during the policy period, the insuring agreement is triggered.Unlike a claims-made policy, there is no retroactive date, you don’t need to be concerned about prior acts coverage and there is no need for an extended reporting tail.

The downside to occurrence coverage is that it tends to be more expensive and it’s not so widely available, at least not for healthcare providers. Another downside is that the policy limit for a claim is set at the time of the occurrence. By way of example, an obstetrician has a difficult delivery in year 1 and the baby suffers brain damage, (the occurrence). It’s likely the claim is not made until many years later, in year 5, year 10 or even year 20, after the extent of any injury and its cause becomes clearer. Since the limits in effect on the date of occurrence determine coverage, it’s possible  the obstetrician is under insured at the time the claim is made. Most medical malpractice claims are made years after the event giving rise to the claim occurred.

What Is a Claims-Made Policy?

Most medical malpractice insurance policies are claims-made policies.

A claims-made policy provides coverage at the time the claim is first made against the insured, even if the incident giving rise to the claim occurred many years previously. Often a claims-made policy will have a retroactive date. A retroactive date limits coverage to claims arising from incidents that occur after a specified date and is typically the date from which the insured has had uninterrupted malpractice insurance. This stops an insured from practicing without insurance for a while and then buying a claims-made policy hoping it will provide coverage for the time period they chose not to purchase insurance.

The benefit of a claims-made policy is that it’s typically less expensive, at least in the early years. It’s less expensive because coverage typically expires on the expiration date of the policy and the insurer understands its liability for claims as of that date. There is no “lifetime” coverage under a claims-made policy which makes liability for claims much easier to determine in the short term. This is why most medical malpractice insurance is underwritten on a claims-made basis.

Some insurance carriers provide the option to purchase an extended-reporting period (ERP) or tail coverage. This allows the insured to report claims after the policy expires as long as the incident giving rise to the claim occurred before the expiration date. An ERP is particularly important if a physician retires or stops practicing medicine for one reason or another. An ERP can be for a limited number of specified years or, following retirement, typically unlimited.

Typically, a medical malpractice insurance claims-made policy also has a provision that allows the insured to report an incident it reasonably believes might result in a claim. This is called “incident trigger” coverage. You should make sure that your policy has an “incident trigger” because not all of them do. It is an important feature for the insured because it triggers coverage for an incident the insured reasonably believes might result in a claim before a claim is actually made.

Importance of Incident Trigger Coverage

The “incident trigger” coverage under the Indigo policy says the following:

It’s worth emphasizing that an “incident trigger” is not a contractual opportunity to report every bad outcome to preserve coverage. That would be of no interest to the insurance carrier and of no service to you. Besides, such a “laundry list” would not trigger coverage for an incident under the policy. The “incident trigger” requires that the bad outcome also has a basis for which the insured reasonably believes a claim is likely. Simply put, reporting an incident allows the insured the opportunity to collaborate with the insurance company and, if appropriate, any appointed defense counsel, about next steps rather than putting it in the drawer and hoping it goes away.

The Indigo policy contains as “incident trigger” outlined as follows:

The Policy applies, up to your Limit of Liability, to Healthcare Incidents - including Claims against you based on actions of your Practice Employees, and your Non-Physician Providers listed in the Coverage Summary for any Incident, Claim, or Administrative Proceeding….(rather than just Claim or Administrative Proceeding).

Aligning Interests of Insurer & Insured

It’s important to understand that the interests of the insurer and the insured are aligned to some extent regarding how to respond to a reported incident. Not every incident will require any action. Many incidents are reported simply to preserve coverage, and nothing further happens unless a claim is made. However, in circumstances where wisdom and the benefit of experience suggests intervention is appropriate, the insured and insurer together can decide upon a series of discrete next steps, typically with the assignment of defense counsel to try to optimize an outcome before a claim is made. Of course, whether to engage early or not typically requires the insured’s consent, so early reporting is as much about facilitating the physician’s informed consent to next steps with the benefit of expert consultation as anything else.

Apology Laws:

An increasing number of states have adopted “apology laws” that can facilitate a meeting with the patient, and their attorney if needed, to humanize what’s happened, provide opportunity for dialogue and an apology. If appropriate, the dialogue allows the parties to explore the possibility of compensation and early resolution, all without a lawsuit being filed, without any admission of fault, with complete confidentiality, with minimal legal expense and minimal fuss. If needed, a third-party mediator might also be retained to assist with the process. The goal is early resolution. A distraction that might otherwise involve a lawsuit, years of anxiety and stress and hundreds of thousands of dollars in legal expenses is resolved promptly and fairly.

The Importance of Early Intervention:

This is the kind of optimal resolution we should all be seeking in resolving a bad outcome in your practice where a patient has been injured and there is a real likelihood of liability. At Indigo, we want to make a difference when it comes to mitigating a potential claim, and so this is the kind of approach we encourage. Not every incident suggests intervention is appropriate. In fact, in many instances intervention will not be appropriate. Similarly, not every reported incident in which we choose to intervene will be resolved. All of that is okay. Our job together is to do the best we can. Remember the old adage, nothing ventured, nothing gained.

The attached article from Claims & Litigation Management (CLM) discusses these concepts and provides a 50-state survey of apology laws and their impact on medical-malpractice suits CLM 50 State Review of Apology Laws.

At Indigo, we view the reporting of incidents and being able to explore the possibility of early intervention favorably. Allowing for early resolution where appropriate is going to be more beneficial for all concerned than waiting for the lawsuit to be filed. Remember the goal is to mitigate a bad outcome in a situation where together, we’ve concluded that a claim is likely. When such matters are successfully resolved early, they will be considerably less expensive and likely to reflect more favorably on the physician than if a lawsuit is filed in the normal course. This is to the benefit of everyone.

Why Choose Indigo for Malpractice Insurance?

Indigo is a new innovative medical malpractice insurance carrier for physicians and surgeons that leverages artificial intelligence to streamline the traditional underwriting process and charge you a premium that is truly reflective of your individual risk. It does so while maintaining that critical "hands on" and personal attention that every claim deserves if a claim arises.

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Disclaimer: This article is provided for informational purposes only. This article is not intended to provide, and should not be relied on for, legal advice. Consult your legal counsel for advice with respect to any particular legal matter referenced in this article and otherwise.