Medical Malpractice and Asset Protection, Part 8: Med Mal Insurance

What doctors must understand about their insurance and why not all polices are equal.

In part eight of our ongoing series on medical malpractice and asset protection, we look at the important details every doctor must understand about their medical malpractice insurance, and why not all polices are equal.

Among the most important layers in a physician’s asset protection planning is their medical malpractice insurance as we touched on in part five of this series. We’ve previously discussed on many occasions that asset protection has three primary layers:

  • Clean Living. Following industry best practices (like maintaining strict standards on diagnosis and documentation), laws and compliance, and ethical standards in all areas to avoid liability in the first place.
  • An insurance program (not just a policy). This means all the right kinds of insurance, to the right coverage limits with the right features and scope of coverage. This includes medical malpractice insurance to cover both any possible judgment against you and the significant and unavoidable costs of legal defense, which are easily six figures on their own.
  • Legal tools to proactively separate business and personal assets and liabilities. This limits your personal exposure for any gaps in your insurance for issues that are either uncovered by insurance, or which create a liability above the limits of your coverage.

Basic Medical Malpractice Policy Vocabulary Every Physician Must Understand

Assessments. Assessments are essentially premium shortfalls you must pay for unexpected or excessive liability that your insurance carrier may incur. Assessment risk is most common in risk retention groups and captive insurance arrangements where there may not be adequate excess reserves to cover this variance. Most commercial insurance policies, on the other hand have this risk built into their premiums, so buyers should know if their coverage carries this assessment risk (an extra bill) and carefully consider if the lower premium is worth the potential additional risk.

Claims Made Vs. Occurrence Policies. Claims-Made insurance indemnifies you from malpractice “claims made” by patients when the policy is active and requires tail coverage. Occurrence-Based insurance covers any incident that occurs when the policy is active, regardless of when a claim is made, more inclusive, no tail required.

Consent to Settle and Hammer Clauses. The consent to settle clause determines if your consent is required by your insurance carrier to settle your case. The hammer clause determines how the insurance carrier’s liability may be limited, and how yours may actually be increased if you do not provide consent to settle and a trial results in a verdict that is larger than the amount they wanted to settle for. Patricia Legant, MD, PhD a solo oncologist who served on the board of a physician-run malpractice insurance company, explains why this is important:

Some carriers prefer to settle a suit, even one without merit, because the cost of defense might exceed the amount of settlement. But any settlement made on your behalf must be reported to the National Practitioner Data Bank, so a settlement can adversely affect your insurance status, ability to participate in a managed-care group, and application for hospital privileges.
Before you purchase a policy, try to negotiate the terms so that your policy includes a consent-to-settlement clause and omits a hammer clause.

Defense Inside the Limits vs. Defense in Addition, who pays the lawyers? It’s vital that you understand who bears the liability for the costs of your defense including legal fees, court costs, experts, and all other related expenses. You should be able to answer the following questions about your policy:

  1. Are defense costs covered?
  2. Is that coverage limited to a specific dollar amount?
  3. Do defense costs come from inside the policy, thereby reducing the amount available for judgments or settlements, or are they separate; if so, is there a limit? Example, $1MM policy limit, $300K for defense costs may equal $700K available for judgment or settlement.

Policy Limits. There are two important numbers here, first the per occurrence coverage, how much your policy covers per each claim filed. Second, the aggregate coverage, the total dollar amount the policy will pay out during the policy period. For Example, many doctors have $1 million per claim and $3 million in coverage for the total of all claims during the policy period and are personally financially responsible for every dollar of a verdict over either of those amounts.

Finally, Scope of Coverage and Exclusions. Know if the policy covers your staff, your practice and everythingyou actually do, like any locums tenens work.

About the Author
Ike Devji, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. Learn more at www.ProAssetProtection.com.