What Are Your Malpractice Policy Options?

Differences in Malpractice Policy Options

In the world of malpractice insurance, malpractice is defined differently by each state, but generally there are two primary malpractice policy options: Claims Made and Occurrence. What’s the big deal? As a dentist, why do you need to know the difference between the two? Why should you read on to learn about insurance when you have so many other things to do? Money versus simplicity.

With one policy, you save money up front, but will often pay more later down the road. With the other you may pay more up front, but there is no hidden expense coming to surprise you later.

It can be very difficult and often expensive to switch policy types later on in your career, so taking just a few minutes to learn the difference and choose the right type of policy for you from the get-go is important and can save you from major headaches down the road.

Compare the Differences in Malpractice Policy Options

The key to understanding the difference between Claims Made Insurance and Occurrence Insurance has to do with dates.

We’re going to start with a story. Dr. Patel graduated from dental school in May 2010. She went to work in a private practice on June 1, 2010 and she bought her first malpractice insurance policy. She was insured with Insurance Company A from June 1, 2010 to June 1, 2015. She then switched to Insurance Company B from June 1, 2015 to June 1, 2019. On March 1, 2018, she receives notice of a claim. The complaint states that she saw patient John Smith in the office on September 1, 2014 – she performed an implant and now the patient is alleging that the implant has failed and is demanding a refund.

If Dr. Patel had purchased a Claims-Made policy, and maintained it while she was insured with both Insurance Company A and Insurance Company B, here’s what would happen: The policy that was in force on March 1, 2018, the date the claim was made against her, is the policy that would respond to the claim. In this case, Insurance Company B would respond to the claim and would defend Dr. Patel in court.

If Dr. Patel had purchased an Occurrence policy, and maintained it while she was insured with both Insurance Company A and Insurance Company B, here’s what would happen: The policy that was in force on September 1, 2014, the date that the alleged incident occurred, is the policy that would respond to the claim. In this case, Insurance Company A would respond to the claim and would defend Dr. Patel in court.

Claims Made Versus Occurrence Malpractice Insurance

There’s no “right” or “wrong” type of policy. But they both do have pros and cons that should be considered.

Remember, money versus simplicity. Reading this article for 5 minutes could save you time, headaches and money in the future.

Claims Made Insurance – Pros and Cons

1. Premiums start low and gradually increase over 5 years. The policy premium typically starts somewhere between $50 and several hundred dollars. It gradually increases by a pre-determined percentage every year for the first 5 years. This pre-determined percentage is called a step-factor. After 5 years, the policy premium reaches “maturity” and the premium remains steady unless you make changes such as increasing your hours, moving to a higher rated state or area, having a claim, or beginning to provide procedures that are considered higher risk. This can be a great benefit to a new graduate who needs time to start paying off student loans before having to deal with the full weight of malpractice insurance premiums.
2. When you begin a claims-made policy, the policy is assigned a retro-active date. This is the first date that you ever issue a claims made policy. In my example above, the retroactive date would be June 1, 2010. That retroactive date should stay on every subsequent policy, year after year. It’s the key to making sure that your current policy will respond to any claims that arise now from services provided all the way to June 1, 2010. If you switch insurance companies from Company A to Company B, like Dr. Patel did, it’s important that the new company pick up this retroactive date and continue to give you coverage back to that original retroactive date.
3. Tail coverage. One of the least understood aspects of claims made insurance. With Claims-made insurance, it’s always the CURRENT policy at the time the claim is filed that responds to the claim. Not the policy that was in force when the actual incident happened. If you cancel a claims-made policy, then you don’t have a CURRENT policy in force any longer to respond to claims that come up now or in the future. That’s where tail comes in. Tail coverage is actually an “Extended Reporting Period”. It’s an extended time period, after the policy is cancelled, where new claims can still be reported to the company for incidents that happened between the retroactive date and the cancellation date of the policy.
4. Tail coverage is only free in 3 scenarios.
   1. If you’re fully retiring from dentistry (and meet certain age requirements and a certain number of consecutive years with your insurance company).
   2. If you become permanently disabled and are unable to continue to practice due to the disability I
   3. If you are deceased, free tail is provided to handle any claims that may arise after your death so that there is no burden to your family.
5. If you don’t fall into one of these 3 categories (and if you’re reading this article, the 3rd category is already not an option), then tail coverage will not be free. It’s better to just rip the band-aid off and tell you upfront – tail coverage is expensive.
6. With claims-made insurance, you’re always working with your current insurance company when a claim arises. Not an insurance company that you had three years ago.

Occurrence Insurance – Pros and Cons

1. As long as you had insurance in place on the date(s) that the alleged incident occurred, then it doesn’t matter when the claim itself gets filed against you. The policy that you had in place on the date of the alleged incident is the one that will respond.
2. Simplicity. You never have to purchase tail coverage or even think about tail coverage. There’s no such thing with an occurrence policy. Because with occurrence coverage, it’s NOT THE CURRENT POLICY that responds. It’s the policy that you had at the time the actual incident happened. In our story above, the dental implant was done on 9/1/2014. It doesn’t matter if Dr. Patel has retired and no longer has an active malpractice insurance policy today. As long as she had an insurance policy in force on 9/1/2014, then that policy will respond to the claim and will defend her in court.
3. The premiums are higher up front. Because you never have to purchase tail coverage later. You may still qualify for a $50 new dentist policy for your first year, but that discount will disappear the 2nd year, and the policy premiums will increase quickly.
4. If you decide to take a leave of absence from work for a year or two – to go back to school, to have children, to go overseas – you don’t have to purchase tail coverage. You can simply cancel your occurrence policy the day after you last saw patients. And then you can put a new policy in place when you return to practice. Simple.
5. When a claim arises, you may not be working with your current insurance company. The company that was in force at the time the alleged incident occurred is the one that will respond. If you switched companies, your previous insurance company may be the one that handles the lawsuit for you.

If you’re reading this then you stayed with me until the end! You now have the tools to make an informed decision regarding your malpractice insurance policy options. If you need further advice, we LOVE to talk about malpractice insurance, or any insurance for that matter. You have your specialty, and we have ours. Leave your questions below, or give us a call – we’re happy to discuss your specific malpractice policy options with you!