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There are two predominant types of medical malpractice policies: Claims-made and
Occurrence. Today, most professional liability insurance coverage is provided
through claims-made policies.
Claims-made Coverage
A Claims-made policy provides coverage only for claims made against “services performed”
that occurred on or after the retroactive date of the policy. (A retroactive
date is used to include “Prior Acts” and does not necessarily coincide with the
effective date of the current policy.) In addition, the policy only covers
claims that are reported while the policy is in force. The premium is based
on current industry conditions, not predictions of the future. Once coverage
is terminated, reporting rights cease unless extended reporting rights, commonly
referred to as “tail coverage,” are purchased. Many companies provide free
“tail” in the event of death, total disability and, with certain restrictions, retirement.
Another advantage is that the policy limits in place when the claim is made are
the limits that will respond to pay the claim. This allows the insurance coverage
to keep up with inflation, the rising cost of legal defense, and the increasingly
high settlement payments as our society becomes more and more litigious.
Occurrence Coverage
An Occurrence policy provides coverage for claims that occurred during the policy
period regardless of the date reported. A premium for an Occurrence policy
is based on predictions of future industry conditions, estimating what claims will
cost in the future and charging for them today. Caution within the insurance
industry often limits this type of coverage.
Examples
Example 1: Dr. Jones has a claims made policy with a retroactive date of 1/1/98
and is effective 1/1/03 to 1/1/04. Is there coverage for the claim for Wanda
Smith? Which policy effective dates would provide coverage?
Example 2: Dr. Jones has had an occurrence policy from 1/1/02 to 1/1/03 and
1/1/03 to 1/1/04. Is there coverage for the claim for Wanda Smith? Which
policy would provide coverage?
Example 3: Dr. Jones had a claims made policy effective 1/1/02 to 1/1/03 with
a retroactive date of 1/1/98. He switched to an occurrence policy effective
1/1/03. He decided not to purchase prior acts or tail coverage effective 1/1/03
as he felt it was too expensive. Is there coverage for the Wanda Smith claim?
Example 4: Dr. Jones was insured by AIG from 1/1/02 to 1/1/03 with a retroactive
date of 1/1/98. He decided to switch his coverage to Ace effective 1/1/03
on a claims made policy with a retroactive date of 1/1/98. Is there coverage
for the Wanda Smith claim? Which carrier should pay the claim?
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