James F. Sweeney

Medical malpractice insurance is one of the greatest expenses physicians face during their careers. A primary care doctor can expect to pay hundreds of thousands of dollars in premiums over the decades.

But knowing what to look for in a policy is a mystery for many physicians, as well as a time-consuming chore that rarely gets the attention it deserves. And buying the wrong type or incorrect amount of insurance-or buying it from the wrong carrier-can be extremely costly. 

Physicians who take the time to understand how to buy malpractice insurance will not only save money, but ensure that they’ve got the right type and amount of liability coverage.

Policies typically cover expenses incurred while defending and settling malpractice suits. These can include attorney fees, medical damages, arbitration and settlement costs, court costs, and punitive and compensatory damages. Liabilities incurred from criminal acts or sexual misconduct usually are not covered. 

There are 2 basic types of malpractice insurance: 

. A claims-made policy provides coverage only if the policy is in effect both when the incident took place and when a lawsuit is filed. Occurrence policies cover any claim for an event that took place during the period the policy was in effect, even if the claim is filed after the policy lapses.

Because a claim can be filed years after an event and after a claims-made policy expires, these policies often include a “tail” that extends coverage for a set number of years beyond the expiration date. If it’s not part of the original policy, tail coverage can be bought separately. 

Tail coverage offers protection when a physician is changing jobs or carriers or retiring. Sometimes, the cost of tail coverage will be covered by a previous employer to protect itself or can be negotiated with a new employer. Occurrence policies generally don’t require tail coverage, but are not available in all states.   

If buying a claims-made policy, be sure that the beginning date for coverage is accurate and matches the date on the prior policy to ensure there are no coverage gaps between policies, says Jennifer Richard, ARM, RPLU, vice president of sales and marketing, Professional Risk Associates., a Virginia-based malpractice insurance broker.

“Physicians should ensure all services they are providing have been fully disclosed and reviewed by their agent and underwriter to ensure there are no gaps in coverage in their practice,” she says. 

“Additionally, it’s important they review all other professional liability exposures within cyber, regulatory, directors and officers, and employment practices liability. There are situations where these coverages could overlap, or come into play, based on the risk exposure of the practice.”

The appropriate amount of coverage can vary by state, specialty, and contractual arrangements with hospitals and other healthcare organizations, says Richard. Some states require providers have minimum levels of coverage, but a physician can still need more. 

In general, carriers’ standard coverage limits are $1 million per claim and $3 million aggregate, which is the most the policy will pay in a year for all claims. However, certain states require different limits based on medical malpractice caps on damages. States with more litigious climates might require more.

Richard cites the example of Virginia, which does not have a statutory requirement for medical liability insurance. However, the state has a medical malpractice cap of $2.35 million (which eventually will increase to $3 million). For that reason, hospitals require physicians to carry at least that amount with an aggregate that is three times higher ($2.35 million per claim/$7.05 million aggregate).

Some states have patient compensation or catastrophe loss funds, which provide an additional layer of coverage over the primary policy limits, says Eric Anderson, vice president of marketing and communications for Medical Professional Liability Associates, an industry group. 

Providers pay into these state-run funds through a surcharge on medical malpractice insurance premiums. If a lawsuit is filed and found to be legitimate, malpractice insurance will cover the injured patient’s costs to a limit set by the state. The rest is paid by the fund.

Carriers must be licensed in each state in which they operate and follow that state’s rules and regulations. While many carriers operate in multiple states, not all do. Patrick Lawn, owner of Physicians Insurance Consultants in Pennsylvania, estimates that there is an average of 5 to 6 carriers in each state.

Price is an important factor, but it shouldn’t be the only one, says Lawn, adding that shopping on price alone can lead to hiring an unreliable or financially precarious carrier.

“You can’t just jump (carriers) for a penny; you’ve got to be able to rely on the carrier,” Lawn says.

Make sure the policy has a “consent to settle” clause, which prevents the insurer from settling a claim without permission of the insured doctor, Lawn advises.

The best carriers will act as resources for their clients, offering advice on how to avoid claims and other matters, says Kenneth Hertz, FACMPE, principal consultant at Medical Group Management Association (MGMA). “Partner with them as a resource. They’re the experts. They’re only too happy to help and they can help you stay out of trouble. It’s to their benefit as well,” he says.

Virginia Kladder, MD, considers herself fortunate that she’s never had to shop for malpractice insurance. “If I had to go out on my own there is no way, as a physician, I could figure it out,” she says.

The Richmond, Va., internist works for PartnerMD, a concierge practice. Buying insurance for Kladder and 23 other physicians across 8 offices in 5 states is the responsibility of PartnerMD’s Chief Operating Officer Jack Bretcher, who, in turn, relies on insurance broker Professional Risk Associates.

A broker has the depth of knowledge and the experience to know the coverage a practice needs and the best insurers to provide it, Bretcher says. 

“They help us keep abreast of what’s out there and what our needs are,” he says, adding that he’s bought extra layers of coverage, including cyber insurance, at the recommendation of 
	his broker.

Even small practices are better off using independent brokers rather than spending the time to research policies and carriers, says MGMA’s Hertz, a former practice manager.

“If you can find a broker who is knowledgeable, it’s a lot easier to hire them to do the legwork, get the quotes, and educate you as a manager,” he says.

An alternative to traditional malpractice insurance is a risk retention group (RRG). These are liability insurance companies that require all company owners to be policyholders and vice versa. 

All owners/policyholders must be in the same type of business, such as physicians. RRGs can offer lower premiums than traditional carriers and, if they are profitable, the owners are paid dividends, but there are some drawbacks as well, says Hertz. They must be incorporated in at least 1 state but can operate nationwide, largely exempt from the oversight of other state insurance departments.

Because they were created by federal law, they are not subject to the same level of state regulation as private carriers. They may not have to disclose as much financial information and they are not backed by state guaranty funds in case of financial troubles. 

Practices should perform due diligence on RRGs before deciding to join one, Hertz says. Sources of information about them are Demotech and Risk Retention Reporter. 

Shopping for malpractice insurance can be a time-consuming task, so it’s not surprising that physicians tend to stick with a carrier and policy unless something changes, such as a large increase in premiums or a contentious claim. That complacency can be costly, says Lawn.

“I’ve seen doctors who are looking to save expenses, but they don’t bother [comparison] shopping one of their highest overhead expenses. It makes no sense to me,” Lawn says.

But that doesn’t mean shopping every year, says Richard, who adds that practices should review their policies and compare prices every 2 to 3 years. 

Ask carriers about ways to earn discounts, says Hertz, who adds that some insurers will offer discounts of up to 10 to 15% if doctors attend carrier-led risk management programs on how to avoid malpractice claims through such things as documentation and better patient communication.

Even if not shopping for a new carrier, physicians should periodically check if their coverage needs updating to account for developments since the policy was purchased. 

“If you have any questions at all, you should reach out to your agent, as they can guide you through practice exposure changes,” she says.

Should you use your own attorney to defend you?

 Should a physician who’s being sued for medical malpractice use a personal defense attorney instead of, or in addition to, the one provided by the insurer? In most cases the answer is no, according to the experts.

As part of the policy, the insurer provides a defense team with expertise in medical malpractice, a highly specialized area of the law. Attorneys who don’t specialize in medical malpractice would be at a significant disadvantage in preparing a defense, says Patrick Lawn, owner of Physicians Insurance Consultants in Lafayette Hill, Pa.

“You want someone who’s an expert,” Lawn says. “A lot of the malpractice attorneys are well-versed in the law, so there’s really no need to spend your own money.”

Private attorneys are at another disadvantage because they do not have a prior relationship with the carrier, which can lead to miscommunication, mistrust, and a disorganized defense, says Jennifer Richard, ARM, RPLU, vice president at Professional Risk Associates, a healthcare insurance brokerage in Midlothian, Va.

Involving a private attorney can even lead to penalties. “Some policies will deny coverage if you have retained your own attorney to handle the case without the carrier’s written permission and the case is adjudicated and/or settled without the carrier’s knowledge,” Richard says. She advises physicians to familiarize themselves with the part of their policy that dictates the carrier’s and physician’s duties when a claim is filed.

The exception would be if the carrier informs the client that a claim is not covered. In that case, “it is good to enlist your own attorney, at your own expense, to protect your potential uninsured interests,” she says. In some cases, if the client insists and the insurer thinks it is to their advantage, the carrier will hire on the client’s attorney for the duration of the case, Lawn says.

Physicians worried that the insurer’s attorney will not adequately represent them should be sure to purchase polices with strong “consent to settle” clauses, which don’t allow insurers to settle a claim without the insured physician’s permission. However, many consent to settle policies also have a “hammer” clause which an insurer can invoke if a doctor refuses to settle. Typically, it states that if a doctor insists on going to court and is found liable then the doctor is responsible for any damages beyond the proposed settlement, as well as any further defense costs.  

Kenneth Hertz, FACMPE, principal consultant with Medical Group Management Association, says he has seen a practice’s private counsel brought in to help settle disputes between members of the practice as to whether to settle a claim. He adds that, even if they are not involved in the malpractice case, a practice’s attorney and the physician’s personal attorney should be kept informed of malpractice proceedings. 

The author reports no potential conflicts of interest with regard to this article.

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