Is your medical malpractice insurance provided by your employer? Are you switching jobs? Are you looking for a new job? Are you in the market to purchase a malpractice insurance policy? Are you planning to retire soon? If you answered “yes” to any of these questions, you likely need to consider whether “tail” insurance (also known as a reporting endorsement) is in your near future.
Now is the time to dust off your employment agreement and malpractice insurance policy and review what happens in the event a medical malpractice claim is brought against you after you leave your current employer. This means paying special attention to whether your malpractice insurance policy provides for claims-made or occurrence-based coverage, and, if it’s the former, who is responsible for purchasing tail coverage.
When Do I Need Tail Coverage?
Whether you are resigning, retiring, or have been terminated, tail insurance should be a key consideration. If you are leaving a place of employment (regardless of your reason for leaving) that has claims-made professional liability insurance, your insurance coverage may not be seamless to your next job. Instead, tail or similar coverage is required. Claims-made coverage protects against professional negligence as long as a two-part test is met: first, you must have the claims-made coverage in place when the negligent act occurs (with Employer #1) and, second, you must be covered by the same carrier when you are notified of the claim while employed by Employer #2. If either prong is not satisfied, the current claims-made insurance policy will not provide you with coverage in the event a lawsuit is filed for an act of negligence that took place while you were employed by Employer #1. The majority of malpractice insurance policies written for medical practices are for claims-made coverage.
If, however, you leave a place of employment with occurrence-based professional liability insurance, your insurance coverage is seamless and no tail insurance is required.
Here is a common example of what happens when a physician leaves a place of employment with claims-made professional liability insurance coverage: A practice maintains claims-made professional liability insurance coverage for its physicians with ABC Insurance Co. A physician decides to leave the practice and is now employed by a new practice, which maintains claims-made coverage with XYZ Insurance Co. While employed by the new employer, the physician receives notice that a medical malpractice lawsuit has been filed for a procedure the physician performed while employed by the former practice. By leaving the former practice, the departing physician automatically fails the two-part test for claims-made coverage, since the second prong described above is not satisfied. Therefore, even though the physician has liability coverage through the new employer, that insurance policy will not cover the lawsuit. There is a gap in liability coverage, unless the physician has tail insurance to cover lawsuits related to the former employment.
If claims-made insurance is the benefit you have received in your employment agreement, it is imperative that you understand tail coverage is necessary when you leave that employment. However, if you leave employment and 1) accept a new job within the same state and 2) remain insured by the same insurance carrier, then the insurance carrier will provide “continuous coverage” and no tail insurance is needed.
If you determine that tail coverage is needed, the next critical question is, Who is paying for this coverage? Even though tail coverage comes into effect after you leave a place of employment, it is best to address how tail coverage will be handled at the onset of the relationship—in the employment agreement. Payment of tail coverage should be defined in your employment agreement. With regard to payment for the coverage, there are several options. First, the cost of tail coverage can be attributed 100% to either party, you or your practice. In specialties where recruitment of new physicians is challenging, employers may be more likely to pay a substantial portion, if not all, of the cost of tail coverage as a benefit or inducement.
Second, you can tie the payment of tail coverage to the manner in which employment is terminated. For example, if you terminate the employment agreement “for cause” or if your employer terminates the employment agreement “without cause,” consider requesting that the employment agreement require the employer to pay for the tail insurance. Alternatively, if you terminate the employment agreement “without cause” or if your employer terminates the employment agreement “with cause,” it may be reasonable for you to pay for the tail policy under those circumstances.
A third option is to split the cost of tail insurance between you and your employer based on a percentage, or to include a vesting schedule. For example, the employer pays a percentage of the coverage if employment ends in the second year, a larger percentage of the coverage if employment ends in the third year, and all of the coverage if employment ends in the fourth year or later.
Whatever arrangement you and your employer agree upon should be included in your employment agreement in order to prevent a costly surprise at the end of the relationship.
It’s Time to Review your Policy
Now that you have an understanding of claims-made coverage, occurrence-based coverage, and tail insurance, it’s time to review your insurance policy. When reviewing your policy, look for answers to the following key questions:
- Is the policy claims made or occurrence based?
- Does your insurance policy only cover professional negligence claims? Does your policy cover claims of unprofessional conduct reported to state medical licensing boards? Does your policy cover punitive damages, intentional misconduct, or contractual indemnity claims?
- How is “loss” defined? “Pure loss” is coverage for the amount awarded to the person who brought the claim. “Ultimate net loss” covers what pure loss covers plus attorneys’ fees and costs.
- What procedures do you need to follow in order to properly notify the insurance carrier of a claim? Are you precluded from full coverage if you fail to properly report?
- What does the “duty to defend” provision cover? Will you be reimbursed for lost wages for your time when in court? What services will be provided as part of your defense?
- What does the “consent to settle” provision say? If a settlement is negotiated between the person who brought the claim and the insurance company and you do not consent to the settlement, are you responsible for the ongoing defense costs and the amount of any verdict in excess of the recommended settlement amount?
It is important to understand what your insurance policy and employment agreement say about your coverage. If you will be responsible for purchasing a tail policy at the end of an employment relationship, you should be aware of this postemployment responsibility so that you are financially prepared.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at [email protected].
