Disclaimer: This article is a brief, simplified description intended to help convey the general ideas. When it comes to your specific coverage, you should always consult your policy’s actual terms and conditions.
As a healthcare or dental professional, you know you want to avoid a malpractice lawsuit or board investigation — aside from being costly, they can be incredibly stressful, too. That’s what led you to look into malpractice insurance in the first place.
But now, you have decisions. Decisions on what limits of liability to get (i.e., how much you want to be insured for), and whether to buy an occurrence policy or a claims-made policy. What’s the difference between these two types of policies, and how do you decide which one to go with?
Claims-Made vs. Occurrence Policies: A High-Level Overview
At a very high level, here’s what they have in common:
- Both claims-made and occurrence policies will provide you with a legal defense for covered claims of medical or dental malpractice (which may be in addition to, or part of, your limit of liability).
- Both types of policies will pay for covered damages that you might have to pay to someone who’s sued you for their injuries.
As for how they’re different, it boils down to:
- What the policy is covering in the policy period (i.e. claims made against you OR occurrences)
- How long the coverage applies after the policy expires
- How far back the coverage will apply to services you performed in the past
- How much effort you want to put into keeping your coverage continuous
- How price sensitive you are in the short term
Now, we’ll dig a little deeper into the two types of policies to learn more about what each covers, what their benefits and drawbacks are, and how they might work in real-world scenarios.
What's an Occurrence Policy?
An occurrence policy covers claims that arise from services you performed during the policy period, even if the claim is brought well after it expires. Say that you perform a procedure for a patient today, but that same patient sues you five years from now. If you had an occurrence policy in effect when the incident “occurred” (in this case, when you actually performed the procedure), you can call on that policy to assist with the claim.
Example: Katie’s a nurse practitioner. She’s always had occurrence-based policies since she started working as an NP three years ago. During her first year of practice, she treated a patient for stomach pain at the urgent care clinic where she works. Unfortunately, that patient suffered complications and now has filed a lawsuit against Katie, as well as all the other professionals who work at the clinic. The occurrence policy that she purchased her first year of practice applies to the claim because it was the policy that was in effect when the alleged incident happened. That policy applies even though the claim wasn’t made until years later.
Benefits of an Occurrence Policy
From an insurance perspective, an occurrence policy is a fairly straightforward way to ensure that you’ll have insurance for your activities over time. It gives you added peace of mind that if a claim pops up from a patient you saw five years ago, you’ll have support from your occurrence policy in effect at that time.
In fact, many healthcare and dental professionals choose occurrence policies because malpractice lawsuits usually involve bodily injury claims – and evidence of that bodily injury can sometimes take years to show up. It’s comforting to know that the policy you purchased back when the patient was treated will still be available to help.
Drawbacks of an Occurrence Policy
The major drawback to occurrence policies is that they cost more upfront because they apply for such a long period of time after the policy ends.
An important thing to consider is that an occurrence policy won’t apply to services you performed before you had the policy. For example, say you had a claims-made policy from 2010 to 2011, and then you decided to switch to occurrence policies in 2012. If a patient files a claim against you for something that happened in 2010, neither policy would step in. (In this case, an insurance advisor might say to stick with your claims-made policy forever, or buy tail coverage for that claims-made policy, which would extend the coverage of the older claims-made policy.)
See why we’re trying to simplify this?!
What's a Claims-Made Policy?
A claims-made policy is less concerned about when the medical incident occurred, and primarily focused on when the claim is made. If you have a claims-made policy and a claim is made during the policy period, then the insurance applies.
Pretty easy, right?
Well, not exactly. Claims-made policies have a few more requirements in order for coverage to apply. But generally, they start out less expensive than occurrence policies, so read on to see if it’s a reasonable option for your specific needs.
Things to Consider If You Choose a Claims-Made Policy
Consideration #1: Make sure your prior acts are covered.
- Similar to an occurrence policy, if the incident happened during the policy period, a claims-made policy will respond, but only if the claim is also made during the same policy period. But what about services you performed last year? To make sure that your claims-made policy applies to those services performed prior to the current policy period, you must ask for the right “retroactive date” on your policy. This date (often referred to as a “retro date”) allows your claims-made policy to apply to incidents that occurred before the policy period, provided that the incident occurred after the retroactive date (and that the claim for that incident is made in the policy period). Ideally, the retroactive date is the same date you first started practicing, so that you have coverage for claims made during the policy period resulting from incidents from the start of your career.
- Insurance companies are usually fine with meeting this request, but normally require that you’ve maintained continuous coverage going back to your requested retro date. (In other words, they require that you’ve had insurance policies in place each year leading up to the current policy period.) If you’re brand new to buying insurance, the good news is that the retroactive date will be the date that your first claims-made policy begins. After that, you simply need to remember to keep this date as your retroactive date for all future policies.
- Example: Katie the NP has always renewed her claims-made policies. During her first year of practice, she treated a patient for stomach pain at the urgent care clinic where she works. Unfortunately, that patient suffered complications and now, two years later, has filed a lawsuit against Katie, as well as all the other professionals who worked at the clinic. Her current claims-made policy applies to the claim because that’s the policy that was in effect when the claim was made, and her retroactive date went back to when she first started her profession (prior to the date when the alleged incident occurred).
Consideration #2: If you stop your coverage for any reason, consider buying extended coverage.
- With a claims-made policy, if you stop practicing or let your policy expire without renewing it, you won't have any coverage for future claims that stem from past services.
- So, what can you do if you someday decide to take a break from practicing your profession? This is actually a pretty common situation; that’s why all claims-made policies offer some form of “extended reporting period” or “tail coverage” that you can buy to protect you on the “back end” in the event that a claim is made after the policy expires. However, the claim has to be for a medical incident that would’ve been covered when the policy was in effect.
- Tail coverage does cost extra money but, depending on how long you extend the policy, it’ll continue to be there for you if a future lawsuit is ever brought against you.
- Example: After 10 years into her career (and 10 years of buying claims-made policies), Katie the NP decided to stop practicing as a nurse practitioner and pursue a new, unrelated career. On her last day of work, she treated a patient for stomach pain. Unfortunately, after her policy expired, the patient sued her. If Katie had purchased tail coverage when she stopped working, the last claims-made policy she had would still be able to respond to the claim. However, Katie forgot to buy the extended reporting period, so the insurance company denied the claim because the lawsuit wasn’t filed during the policy period.
Benefits of a Claims-Made Policy
While the management of a claims-made policy can seem complicated, one major benefit is that it can be less expensive. For many budget-conscious professionals, this is an ideal way to manage cash flow, particularly when they’re just starting out.
Note that the claims-made policy premium does increase each year to cover the previous year’s work. This means that the cost savings will naturally decrease a little bit year-by-year until you hit five years, at which point the policy may be similarly priced to an occurrence policy.
Drawbacks of a Claims-Made Policy
As noted above, a claims-made policy requires a few additional consideration and actions on your part (e.g. ensuring that you receive and maintain an appropriate retroactive date, purchasing tail coverage).
Ultimately, deciding between a claims-made or occurrence policy will depend on several factors. Here are some helpful questions to ask yourself as you make your decision.
Question #1: Do you already have professional liability insurance?
If you already have a policy in place, staying with the same type of policy can keep things simple. For example, if you already have a claims-made policy and decide to buy another claims-made policy, you won’t have to worry about buying tail coverage (which is what you’d have to do if you switched to an occurrence policy). But, if you already have an occurrence policy and want to save money, you can move to a claims-made policy without worrying about tail coverage. Just remember that that cost savings will disappear in a few years, and you’ll also have to manage your retroactive date going forward with each additional policy.
Question #2: Are you in a current budget crunch?
If you really need to save money, and you don’t currently have insurance, a claims-made policy may be a good short-term solution. Remember, though, that the cost savings will not last. Also, remember that if you already have a claims-made policy, you’ll likely need to match the retroactive date on your current policy, which means any cost savings will be smaller, since the more prior acts you need the policy to cover, the more the policy will cost.
Question #3: Do you plan on having temporary or long-term pauses in your career?
If so, buying an occurrence policy to cover you while you’re active in your profession may be a good solution. If you have an occurrence policy and take a break from working, you don’t need to worry about buying tail coverage for claims that arise after the policy expires. Of course, you do also have the option to buy a claims-made policy, but you’ll need to make sure that you have adequate tail coverage to support you in the event of future lawsuits.
Just remember that no matter which type of policy you choose, having your own malpractice insurance will give you peace of mind that you won’t have to bear the financial burden of a malpractice claim alone.
Image courtesy of iStock.com/Pgiam