In a nutshell, medical malpractice insurance covers legal defense and associated costs resulting from malpractice lawsuits. But those associated costs can be everything from expert testimonies, settlement fees, or lost wages due to requirements of the trial. Basically, if someone files a lawsuit claiming your actions fell below the standard of care and caused injury or harm, your policy can cover the expenses to defend you.
Medical malpractice cases that go to trial often side with the practitioner. However, the costs of legal representation can be substantial, even if the case is baseless. For example, suppose a patient files a claim alleging that a delayed diagnosis led to further health complications. Your defense proved you met the standard of care and promptly referred them to a specialist. Even though the case was eventually dismissed, the legal fees were substantial. Malpractice insurance can provide financial protection, allowing you to avoid the added burden of legal expenses.
To better understand what malpractice covers, it’s important to first define a few key legal terms:
- Arbitration: A dispute resolution process that relies on an independent third party to hear and decide the case without going to court.
- Damages: The amount of money that’s requested or awarded to “make the injured party whole,” including compensation for pain and suffering or lost wages (the plaintiff’s legal team often expresses this request as “we are seeking $X in damages”).
- Plaintiff: The party who files the lawsuit (usually the patient or their family member).
- Settlement: A financial award given to the plaintiff that is negotiated and agreed to by all the parties out of court.
With that out of the way, here’s what you can expect from typical medical malpractice insurance coverage.
1. Attorneys’ Fees
If you’re facing a lawsuit, you may need to hire an attorney to prepare your defense and represent you in court. Without malpractice coverage, legal fees can be substantial. In 2004, the National Association of Insurance Commissioners discovered that insurers, on average, spend more than $6 million each year to investigate the legitimacy of a malpractice claim and to provide legal defense in case of litigation. Adjusted for inflation, that would equal $9.6 million in 2023.
Looking at the cost on an individual case basis, a study published in the National Library of Medicine found that the average cost of attorneys’ fees amounts to $0.19 for every dollar paid. For example, if a malpractice settlement awarded the plaintiff $1 million in damages, the associated legal fees would be about $190,000 (i.e., 19% of the total amount paid).
2. Court or Arbitration Costs
The cost of court or arbitration can vary widely depending on the complexity of the case and the length of the legal process. Costs for filing a lawsuit, hiring a mediator or arbitrator, and taking depositions are all expenses that can add up quickly. If the case goes to trial, the legal costs can escalate further.
Medical malpractice insurance can cover these expenses. Not having it may force you to pay for these defense costs out of your own pocket, which can be financially devastating.
3. Settlement Costs
Settlements are often used instead of a trial to avoid the cost and uncertainty in medical malpractice cases. Settlement costs can include compensation for the plaintiff's alleged damages, legal fees, and other expenses, depending on the nature of the malpractice and the extent of the plaintiff's alleged injuries.
For example, imagine a patient accuses you of providing insufficient care during surgery, leading to considerable extra medical costs and lost wages. So they take legal action against you (and the surgery team) for malpractice. After months of back and forth between their lawyers and your lawyer/medical malpractice insurance company team, a settlement is reached. The payment can include a significant payout to the patient to cover current and future medical bills or the claimed loss of the ability to work and earn an income. Without malpractice insurance, the burden of covering these costs falls on you (and the surgery team).
4. Damages
The term “damages” describes the amount of money a plaintiff may receive in a medical malpractice lawsuit. Medical professionals should be aware of the three primary types of damages:
- General damages include pain and suffering, loss of enjoyment of life, and other non-financial losses.
- Special damages include financial impacts such as medical bills, lost income, and long-term effects on patients' ability to earn a living.
- Punitive damages are rarely awarded. They’re reserved for incidents where there’s reckless behavior or a disregard for the safety of others.
The financial burden of damages can often be much greater than the cost of legal defense. As reported by the JAMA Network in 2017, the average payment for medical malpractice claims from 1992-2014 is $427,409 after being adjusted for inflation. Medical professionals without malpractice insurance may be held personally responsible for any monetary compensation awarded to a patient.
5. Costs to Defend a Board Action or Investigation
Medical malpractice insurance can protect against board actions or investigations, but only if you have the right type of policy. For example, anyone can file a complaint with a healthcare provider’s licensing board, and lawyers aren’t typically allowed into licensing board committee meetings. This means you’re on your own to defend yourself. In a situation like this, malpractice insurance provided by your employer may not be much help — it’s essentially you against your employer.
Without proper legal representation, you could be at risk of losing your license, reputation, and livelihood. However, having your own malpractice insurance policy can help. When you have your own policy that provides coverage for board actions or investigations, you can get legal advice and work with a legal team to prepare ahead of time.
6. Additional Costs
Medical malpractice insurance policies cover a range of additional costs that medical professionals may encounter. Policies can include extra coverages, such as:
- Reimbursement for HIPAA proceedings
- Travel expense reimbursement
- Compensation for lost wages
- Fees for crisis management public relations consultants
- Protection related to peer review panel work (explained below)
Many medical malpractice insurance policies also protect against liability as a result of work done on a peer review panel. In such cases, if you collaborate with fellow medical professionals on a decision and a patient sues the panel, your insurance policy would likely kick in.
What Is Not Covered by Medical Malpractice Insurance?
When thinking about what medical malpractice insurance covers, you also must consider what it doesn’t. Policies typically list types of actions or complaints they don’t cover (called “exclusions”), so it’s important to read through them when comparing policies. The most common exclusions are sexual misconduct, intentional or criminal acts, acts outside the scope of your license, and cybersecurity breaches.
1. Sexual Misconduct
Sexual misconduct, such as any inappropriate behavior or actions of a sexual nature between healthcare professionals and patients, falls outside the coverage of medical malpractice policies. Many continuing education courses and professional training are available to help educate professionals and staff on what constitutes sexual misconduct and how to respond to it.
2. Illegal Activities
Insurance policies support medical professionals in cases of unforeseen mishaps but do not cover illegal activities or deliberate misconduct. The medical malpractice insurance safety net is designed to exclude any such behavior. Examples of illegal activities include working under the influence of drugs or alcohol and theft of drugs or medical supplies.
3. Acts Outside the Scope of Your License
While a Good Samaritan act is typically covered under your malpractice policy, medical procedures done outside of your license are not. Each profession has a defined scope of practice that outlines the services and actions its practitioners can perform based on their specific license and training. Malpractice insurance policies are generally tailored to cover risks within these parameters.
If you engage in medical procedures or work in areas outside your license or specialty, you expose yourself to substantial legal and financial risk, as you might be held personally accountable for any resulting harm or complications.
4. Cybersecurity Incidents
Healthcare business owners should be aware that cybersecurity breaches can cause significant financial losses, including expenses for data recovery, patient notification, and legal expenses. Malpractice insurance policies don’t cover these losses. To protect yourself, you may want to consider getting a cyber liability insurance policy.
Mistakes Can Happen to Anyone
In the following chapter of this guide, we’ll share real-life examples of medical malpractice cases involving a range of healthcare professionals. These cases offer valuable insights into the complexities and challenges of malpractice claims, as well as the importance of maintaining ethical standards and providing quality care to patients.
Looking for reliable medical malpractice insurance that's got your back? Look no further than Berxi. Our comprehensive coverage includes protection against board actions, litigation fees, and more. With Berxi, you can have peace of mind knowing that you’ll also receive world-class claims service from an A++ rated insurer. Learn more about how we can help protect your medical practice.
In the next chapter of this guide, we'll share some real-life examples of malpractice cases that involved various types of healthcare professionals.
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