What is malpractice insurance? This is clearly an important question when deciding whether you need malpractice coverage in the first place. You might hear this term from colleagues and mentors, see ads, and read online chatter after a medical professional is sued for alleged malpractice. Or you might run your own healthcare business and know you need different types of insurance, but not sure how much coverage medical malpractice insurance provides a healthcare business owner and their team.
This guide offers a general overview of typical insurance coverage and breaks down the confusing insurance jargon. You’ll learn how medical malpractice insurance works, who needs it, and what to look for when buying a policy.
What Is Medical Malpractice Insurance?
The Center for Insurance Policy and Research defines medical malpractice insurance as: “Medical professional liability insurance, sometimes known as medical malpractice insurance, is a type of professional liability insurance that protects physicians and other licensed health care professionals (such as dentists and nurses) from liability associated with wrongful practices resulting in:
- Bodily injury
- Medical expenses
- Property damages
It also protects them from the cost of defending lawsuits related to such claims.”
Tailored specifically for healthcare professionals, medical malpractice insurance can protect you if you’re sued individually, named as part of a team, or subpoenaed as a witness — and, in some cases, if you’re named in a licensing board action (more on this in “What Does Malpractice Insurance Cover?”).
Most medical malpractice insurance covers:
- Settlements to third parties for covered claims if you are found liable
- Legal defense costs outside of your limits of liability (This is the most your insurance company will pay on a claim or claims covered by a policy, so if legal defense costs are “outside the limits” of the policy it means you have more money to cover any settlement fees.)
- Court fees
- Expert testimony expenses
- Prejudgment and post-judgment interest (This could be substantial in certain jurisdictions where it takes a long time for a case to get adjudicated.)
- Lost wages or travel expenses if you must miss work or travel for a trial, to appear in court or settlement negotiations
- HIPAA defense
- Good Samaritan coverage
- Worldwide coverage
- Licensing board protection defense
Why Is Medical Malpractice Insurance Important?
Medical malpractice insurance is critical for healthcare professionals because it provides a safety net in the event of a malpractice lawsuit. Without it, the financial burden of a malpractice claim can be devastating.
However, when your claim is covered by your insurance, the insurer takes care of costs associated with a lawsuit and potential settlement, including legal fees (as long as they fall within your policy coverage and “limits of liability”). This way you can focus on your practice and patients instead of worrying about the financial repercussions.
In other words, medical malpractice coverage protects your livelihood and ensures you can continue to provide high-quality care without the added financial stress of a lawsuit or claim.
Frequency of Medical Negligence
Medical negligence is a significant and increasing concern in healthcare. As medical negligence can affect the risk of patient injury, disease, disability, or death, the World Health Organization declared patient safety a global healthcare issue in 2021, kicking off a global action plan.
How is medical negligence different from medical malpractice? Registered nurse and attorney Edie Brous summarizes it like this: “Negligence is an umbrella term, and professional malpractice is a specific form of negligence.”
So how often does medical negligence occur? Well, while some of this data is older than we’d like, we can focus on what we do know:
- There’s an average of 85,000 medical malpractice suits filed in the U.S each year.
- There were 10,807 medical malpractice payments reported in 2022.
- 21% of American adults reported having suffered from an alleged medical error and 31% said that someone close to them had experienced medical negligence.
- Alleged medical errors can have lasting effects on their physical health, emotional health, financial well-being, and family relationships.
- Most negligence cases are not reported. A 2004 report showed that while 2.9%-3.7% of hospital patients experience an adverse event, only 2% of patients injured by the alleged error file a claim.
Deaths Due to Alleged Medical Errors
Deaths from medical errors are a critical issue but calculating the exact number can be difficult. In the U.S., death certificates don’t list human or system factors as causes of death. But one group of researchers analyzed data from a Global Burden of Disease study to find out how many deaths occurred from 1990 to 2016 as a result of “adverse effects of medical treatment.”
Approximately 4,754 deaths are attributed to medical errors each year, according to these researchers’ findings. In the face of such unfortunate incidents, medical malpractice insurance can provide support and financial protection for healthcare professionals.
Volume of Malpractice Lawsuits
The volume of malpractice lawsuits is a growing concern for many healthcare professionals. According to Medscape's Malpractice Report 2021, more than half of physicians have been sued at least once, with 43% of cases naming multiple defendants. Medscape also reported on the time and money spent on malpractice lawsuits, noting that defendants spent more than 40 hours working through the legal process. And while the largest payout per the 2021 report has been $205 million, 90% of cases settled for $1 million or less.
How Does Medical Malpractice Insurance Work?
Medical malpractice insurance works by providing protection for healthcare professionals who are facing a malpractice claim. If an allegation is made, the insured healthcare provider would contact their insurance provider. While the process can vary depending on the situation, it typically follows a set pattern.
Contact Your Claims Team
If a claim is reported, you must first contact your insurance provider. Your medical malpractice insurance provider or their claims in-take team would then assign a claims examiner to your case, and reach out to you. The claims examiner should also update you throughout the process and work as your point-person when you have questions or concerns.
Get Legal Counsel
Your claims examiner will assign an independent attorney specializing in medical malpractice to your case. They will investigate the claim, work with you to develop a defense strategy, and connect with the patient’s lawyers.
Provide Notes & Testimony
Providing detailed notes and answering your lawyer’s questions completely can help them better understand the situation and build a stronger case on your behalf. Working with your lawyer to prepare these materials can also ensure that all relevant information is presented in a clear and organized manner.
Stay Tuned for Regular Updates
It's important to remember that responding to a medical malpractice claim can be a lengthy process. While the timeline varies depending on the specifics of each case, things can often take over a year or two. Staying patient and informed can help alleviate some of the stress. Having a skilled legal and claims team on your side can also help ensure that the process is as smooth and efficient as possible.
Who Pays for All This?
Medical malpractice insurance policies typically cover legal fees, expert witness fees, and potential settlements or judgment awards up to the policy limits.
These “limits of liability” are determined when you buy your policy. A typical range might be $1 million/$3 million. This means the insured is covered for $1 million per claim and $3 million for multiple claims per policy period.
Note that defense costs are typically in addition to or outside the per claim limit, aka “defense outside the limits.” This means if your defense for one claim costs $100,000, you still have the full $1 million limit to cover a settlement.
You may need to pay a deductible or contribute to the costs beyond the policy limits, so consider your coverage needs and review the deductible and policy limits before choosing a plan. (Note: A Berxi policy does not carry a deductible!)
Types of Medical Malpractice Insurance
Choosing the right malpractice coverage starts with knowing the types of malpractice insurance available. Policies can be individual or group policies with claims-made or occurrence coverage.
Group vs. Individual Policies
The medical malpractice insurance policy you get from your facility typically covers all members of a practice or organization. An individual policy covers only one person.
When you start a new job in healthcare, your employer may offer medical malpractice coverage as part of their employee benefits. With this type of policy, your employer has already selected the insurer and negotiated the policy details. While it can be convenient, it may limit what you're covered for and when.
If your employer doesn’t offer coverage or if you want additional protection, or you work independently, you can purchase your own medical malpractice policy.
Having your own policy gives you more control over your coverage and allows you to choose liability limits that suit your needs. Plus, professional healthcare associations often recommend individual coverage. The American Academy of Physician Assistants (AAPA), for example, recommends that PAs get their own policies.
Claims-Made vs. Occurrence Policies
Most employer medical malpractice insurance policies are claims-made. A claims-made policy covers claims made while the policy is in effect. This means the incident must take place and the claim must be made during the policy period.
An occurrence-based policy, on the other hand, covers incidents that happen during the policy period, regardless of when the claim is filed. For instance, if you buy an occurrence-based policy for 2023 and a patient files a claim in 2027 for an incident that occurred in 2023, your 2023 policy should cover you even if you no longer have a policy with that insurer in 2027.
Another type of policy to consider is a supplemental policy, which is similar to a primary policy in terms of coverage, but at a lower price. A supplemental policy, also called a secondary or individual policy, complements your employer-provided coverage and enhances your protection.
It can be especially useful for work done outside the scope of your employer’s policy or to fill gaps in coverage. A supplemental insurance policy can also cover board actions not covered by your employer's policy and increase your liability limits to potentially reduce out-of-pocket expenses.
Tail coverage is a valuable add-on to a claims-made malpractice insurance policy. It provides protection for claims that are made after your policy expires or is canceled. For example, if you retire or change jobs and still want coverage for any claims that come up after you are no longer covered by your former employer’s policy, you’d get a tail insurance policy.
In some cases, claims may not be filed until a year or more after the injury, making tail coverage a vital component of malpractice insurance. Without it, you could be left vulnerable to potential legal and financial consequences after your policy ends.
Who Needs Medical Malpractice Insurance in 2023?
Many states require certain healthcare providers to carry professional liability insurance. But even if it’s not required, many professionals choose to protect themselves with a malpractice policy anyway.
Doctors aren’t the only medical providers who are named in malpractice suits; any individual or organization involved with medical treatment can be held liable for costs or claims of medical negligence or error. The Insurance Information Institute also recommends that other medical professionals, such as dentists, psychologists, pharmacists, nurses, and physical therapists, carry malpractice policies.
Here are several reasons why you may want to consider buying malpractice insurance, even if it’s not legally required:
- You run your own clinic or private practice.
- You want a comprehensive supplemental policy in case your employer’s policy doesn’t cover you completely.
- You want your own policy so you can have more control over the legal team and decisions made on your behalf.
- You moonlight or do medical work outside of your typical job description.
- You’re an independent contractor.
- You want coverage for things your employer’s policy doesn’t cover (e.g., HIPAA or board actions).
- You are a student doing clinicals.
- You want an additional financial cushion to fight claims.
In the next chapter of this guide, we'll discuss what's typically covered under medical malpractice insurance — and what's not.
Robyn Correll, MPH contributed to this article