Malpractice Insurance Primer: Part 1 -- Tail and occurrence coverage

Malpractice insurance is too often thought of as something you know you need, but you don't always have mastery over the details of the policies. This series of articles will focus on different aspects of malpractice insurance, serving as an overview. As always, your particular needs may vary and one size does not fit all.

As a quick review, the difference between an occurrence policy and claims-made policy is whether coverage is triggered based on when an incident first occurs or when the resulting claim is filed against you. This distinction not only leads to separate limits, but also has major implications when it comes time to transition your coverage.

Since claims-made coverage is based on when a claim is filed, these policies are only triggered while your policy is active. To extend coverage if your claims-made policy is canceled or terminated, you'll need to either obtain an extended reporting endorsement (which is known as tail coverage) or have your new carrier cover your prior acts back to your retroactive date.

Tail coverage can be expensive. Depending on the state in which you practice, it typically costs 140% to 220% of your current, undiscounted rate. Payment for tail coverage is typically due in full and must be paid within 30 to 60 days of policy cancellation. Keep in mind, the limits available under tail coverage may differ from the limits available during your most recent claims-made policy period; be sure to carefully review your policy.

Most companies will offer tail coverage at no charge in the event of death, permanent disability, or retirement (in some cases). The key is in the details, so ask if you are eligible for a free tail in the following circumstances in which you:

• Retire before the age requirement in the policy is met (if specified)
• Retire before having been insured with the carrier for a required minimum number of years
• Decide to join the faculty of a dental school or pursue a public health role prior to retirement
• Are a student with claims-made coverage during an externship
• Decide to enter a residency program
• Take time away from your practice to raise a family or any other reason
• Decide to sell your practice, while staying with the practice for a couple of years
• Are not renewed by your current insurance provider

Occurrence policies

An occurrence policy provides additional limits of protection and also removes the need to purchase an expensive tail if any of the risks or changes above impact you at some point in your oral or maxillofacial career.

Many oral and maxillofacial surgeons may not know that there is a choice of policy types for their malpractice insurance coverage. Ask yourself this question: Should my malpractice coverage be based on when the incident actually occurred or when the actual claim is made?

This might seem like an insurance technicality, but it's one of the deciding factors when choosing between occurrence and claims-made coverage -- a decision that can equate to coverage differences over the course of your career.

A key issue is policy limits -- the total amount of money that your insurance carrier will pay on your behalf. With claims-made coverage, the limits you've chosen are available to pay all claims that are made during the current policy period (provided that you haven't had any gaps in coverage).

Occurrence coverage provides a distinct set of limits for each year you buy the policy -- applicable to alleged errors that happened within each policy period -- regardless of when a claim is made against you. A single incident will only affect the limits of the corresponding occurrence policy, leaving your other occurrence policies (and their limits) untouched.

Imagine that you've been practicing since 2004, have maintained the same policy type and limits every year, and received notice of a lawsuit today based on a surgery you performed in 2011:

• With claims-made coverage, your current claims-made policy is triggered -- even though the incident took place in 2011. And, if a new and different claim were to be made tomorrow (say, based on an extraction in 2008), your current claims-made policy would be triggered again.

• With occurrence coverage, your 2011 policy would respond (after all, that's when the original incident occurred), and your other nine years of limits would be unaffected by this claim. If a new and different claim were to be made tomorrow (based on an extraction in 2008), your 2008 occurrence policy would be triggered -- again, without impacting the other years' limits.

Let's put some solid numbers to it. Over the course of a 35-year career, you could have as many as 129,000 patient interactions. Assuming that you've maintained continuous claims-made coverage, your policy would offer limits of $1,000,000 per claim/$3,000,000 aggregate -- to cover every one of those 129,000 interactions that could turn into a new claim during the current policy year. In contrast, if you had purchased occurrence coverage each year for that same 35-year period, you would have potentially 35 different sets of limits to cover any claims that arise.

There are additional differences between claims-made and occurrence policies that can impact your policy's portability, your need to obtain an extended reporting endorsement, and how your insurance carrier operates.

Jennifer Gibson is with the Medical Protective Dental Team, based in Fort Wayne, IN.

The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.