Professional liability or malpractice insurance, protects professional-advice and service-providing individuals and companies by providing defense and reimbursement for settlement of court-ordered award.
Professional liability insurance takes different forms and names depending on profession. For the medical professions, it is known as malpractice insurance. For other professions, it is commonly known as Errors & Omissions.
Occurrence coverage provides protection for professional services rendered while the policy is in effect, regardless of when a patient files a claim. Even after you stop practicing, your occurrence policy will still provide you and your estate with coverage for the professional services you provided during the policy term. Fewer insurers offer Occurrence coverage than Claims-made due to the carrier needing to plan for the long-term exposure. In addition, with an Occurrence policy, each year has its own policy limit. Thus the slightly higher annual cost. Occurrence coverage costs more, typically $200-$400 more annually than Claims-made policies.
While occurrence coverage is based on when the act occurred, claims-made coverage is based on when the act is reported (when the claim is made).
Claims-Made Coverage - while Occurrence coverage is based on when the injury/service occurred, Claims-made coverage is based on when the injury is reported (when the claim is made). Claims-made policies provide coverage for claims that are reported to the insurer while the policy is in force. The Claims-Made policy limit covers from policy retroactive date to the policy expiration date. In order to cover claims made after the termination of the policy you would have to purchase or be given a “Tail” or buy coverage with a new carrier that will provide “Prior Acts” Coverage.
"Tail" Coverage - or Extended Reporting Period (ERP) Endorsement, may be required to provide protection for claims that may be reported after the policy’s termination date. In the event of a cancellation or a non-renewal, you will need to either purchase a “Tail Policy” or have your new carrier pick up your Prior Acts coverage. Many carrier’s policies will include a FREE Tail at Retirement, Disability, or Death. The Cost of purchasing a Tail Policy can range from 1.5-2.5 times your previous years rate.
Tail is generally free at retirement if the insured meets the underwriting requirements of the carriers (number of policy term with carrier, age of insured, etc).
For all claims made policyholders. The tail protects the insured’s assets from claims that they are unaware of at the time of policy expiration or cancellation. This will also protect the insured upon the sale of their practices and the buyer wants the same protection as well.
Some entities will require the contracted physician or employees (review your employment contract) in order to limit the entity’s exposure to claims involving the physician’s services in the future.
The cost of of a typical tail is between 200% - 230% of the expiring annual premium for an unlimited duration. Or, it could be free, check with your current carrier. In addition to the high cost, Tail coverage is fully earned and not available for finance.
For surplus carriers, the typical cost is 150% for 1 year, 200% for 2 years and 250% for 3 years of the expiring annual premium. Surplus carriers do not offer unlimited protection nor free tail coverage.