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Malpractice Policy Basics

3 min. read

There are two basic types of malpractice insurance: occurrence and claims-made. When you are deciding between the two, it is important to evaluate your individual circumstances not only now, but also in the future.

Occurrence

Protects you against claims for alleged incidents that occur when the policy is in effect. Even if the policy later expires or is canceled, the coverage will be there to protect you for the period the policy was in force. This is important because many times a patient can file a lawsuit months or even years after an incident took place.

Coverage will be provided at the limits of liability, terms and conditions in effect at the time of the alleged injury.

Claims-Made

Protects you against claims made and reported by you during the policy period. Coverage is provided at the limits of liability, terms and conditions in effect at the time the claim is reported. If you cancel a claims-made policy, it’s recommended that you obtain “tail coverage” to provide coverage for alleged incidents that took place during the policy but weren’t reported while the policy was in effect.

Note: Tail coverage may not be available if the claims-made policy cancels for nonpayment of premium.

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Consent-to-settle Feature

One of the most critical features of a malpractice insurance policy is whether it gives you the authority to settle—or not settle—a malpractice claim.

All policies name the party who is authorized to give consent to settle, but not all are created equal. The ideal consent to settle is one that can be authorized only by the insured (you). However, some policies have clauses that limit a doctor’s decision to settle or not. Two variations are:

Hammer or Modified Hammer Clauses

If the policy contains a Hammer Clause and during the claim the doctor refuses to consent to any settlement recommended by the insurance company, the doctor becomes personally responsible for any judgment in excess of the proposed settlement account.

The insurance company may wish to settle for a number of reasons. For example, if there are poor medical records, unresolved conflicts between your testimony and others’, or personal/professional problems that could influence a jury, settlement may be rigorously pursued by the insurance company. If the company believes you are unreasonably withholding your consent to settle, the company will invoke the hammer clause.

A settlement can save the insurance company money by shortening the litigation process, but it forces doctors to make some difficult decisions about whether to continue to fight and prove their innocence. Doctors must also consider the impact on their personal finances if they press on with the claim.

Arbitration Clauses

Another clause found in some professional liability policies that affects the doctor’s consent to settle is the arbitration clause. If an insurance company deems an offer to settle a claim or suit is proper and the doctor is withholding consent, the insurance company can hire an arbitrator to decide if the consent is being unreasonably withheld. Then, if the arbitrator decides the doctor is being unreasonable in withholding their consent, the insurance company can proceed to settle the case without the doctor’s consent.

Because of its impact on your reputation and profession, it’s important that you have a policy with a true consent-to-settle clause that gives you control regarding whether to settle.

Some insurance companies have doctors enter into arbitration agreements with their patients. This requires you to ask your patients to sign a form mandating that they submit to arbitration should they decide to pursue an allegation of malpractice.

Under this provision, any claim by the patient is presented by an arbitrator for review, and both you and the patient forfeit the right to pursue litigation. Arbitration is binding, so there is no appeals process.

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