As more and more ob-gyns contemplate a change in the direction of their professional practice, many are confronted with the need to purchase an extended reporting endorsement, commonly known as a tail, for their professional liability coverage. As you are likely aware, the two most common types of liability insurance policies for ob-gyns are claims-made policies and occurrence policies.
A claims-made policy covers only those events and claims that occur and are reported while the policy is in effect. All coverage ceases on the date the policy is terminated.
An occurrence policy covers events that occurred during the period the policy was in effect regardless of when a claim is filed -- even if you no longer are covered by that insurer. Occurrence policies are desirable for ob-gyns because claims for impaired infants may be made years after the event happens. On the other hand, it may be prohibitively expensive to obtain coverage limits in an occurrence policy comparable to those of a claims-made policy.
Claims-made policies predominate among ob-gyns. If you have a claims-made policy, you cannot simply leave your current carrier and start over with a new one. Liability exposure for incidents that happened before the beginning of the new insurance relationship, but have yet to result in a claim, must be addressed. Consider the following scenarios:
- A physician leaves a group or closes a private practice to become employed by another group or hospital.
- A group practice merges with another group, or the whole group is acquired by a hospital.
- A group practice is contractually obligated to purchase tail coverage for a departing physician.
- A new physician is being recruited, and the analysis of his/her employment includes whether to “tail out” prior-acts of the physician or to provide coverage for the prior acts.
Some carriers offer free tail coverage if a physician has been covered by a claims-made policy for a specific number of years, or when the physician is completely retiring from the practice of medicine. However, as in the examples given above, moving from independent practice to retirement is not the predominant scenario we see today.
Therein lies the rub. Most carriers charge 200 percent or more of the previous year’s premium for tail coverage. This is a one-time, due-upon-demand payment. As a physician, unless the hospital or new group that is employing you is willing to cover this cost, you’re stuck with it. In some cases, when a practice is selling its assets to a hospital or health-care system, the cost of the tail can effectively wipe out any of the proceeds of the sale. Anecdotally, we have heard of ACOG members being confronted with tails ranging from $50,000 to over $150,000. The variances are due to the existing liability climate in the state in which the physician practices.
In these situations, there are two potential solutions. The first, if you are moving to a new employer be it a new practice or hospital, is to check to see if they will provide prior-acts or “nose” coverage. This allows you to transfer your existing policy commencement date to your new insurance carrier, thereby eliminating the need to purchase tail coverage from your last carrier. Industry sources tell us that it is usually less expensive to obtain nose coverage from the new company than it is to buy tail coverage from the old carrier. You then purchase a first year claims-made policy from the new company.
In many situations where hospitals employ physicians who are already in the community, the hospital will absorb the cost of the nose coverage. Thus, the net out-of-pocket to the physician is zero.
If the first option is not a viable one, there is a fairly new insurance product on the market known as Stand-Alone Tail Coverage. This product is an extended-reporting endorsement policy purchased from a different liability insurance carrier than has previously covered the ob-gyn. This policy covers only claims made against an insured physician during the years after his or her traditional, original claims-made policy has expired. Up until recently, physicians had few options other than to purchase a tail or extended reporting endorsement policy from their existing carrier. Now, there are some carriers offering prices for stand-alone tails that are lower than the cost of tail coverage from the existing carrier.
The stand-alone policies can reduce the tail premium anywhere from 10-50 percent. Premiums are based on the time frame for the coverage -- anywhere from one year to unlimited -- and on other underwriting criteria.
These policies can also be used in circumstances where an ob-gyn practice is being sold or shut down and may have ongoing exposure to prior liabilities, but no free tail is available.
There are at least a dozen national liability insurance carriers that can write stand-alone coverage. Consider engaging an independent agent familiar with the professional liability insurance market and have him or her shop a number of carriers to get the best deal.
L. Michael Fleischman