Pay Now or Pay later for the cost of tail coverage?

October 17, 2013

Should Tail be included?

It is my opinion that medical groups should include ‘tail’ at the time of cancellation when paying for malpractice insurance coverage.

It is my experience that most medical groups have claims made policies. These claims made policies are up to 2 ½ times less expensive than an annual occurrence policy.

Claims made policies are less expensive because they defer the cost of insuring future claims.

Pay Now or Pay later for the cost of tail

It is also important to note that not purchasing tail insurance is just like carrying bad credit forward into your professional career. Almost all future employers are going to ask if you have paid a tail policy, and they will ask for proof of that policy.

This is because there is a universal belief amongst medical groups that any retroactive risk will attach to the new group.

Logic dictates otherwise, if a medical group brings a physician on, then any vicarious risk rising to the group/entity would occur after the date of hire.

The assumptions of Vicarious Liability

Anything that occurred before the date of hire, by this logic is irrelevant to the group’s claims history pertaining this new physician.

This logic, stated above is why every physician who is joining a medical group that has a private medical malpractice insurance carrier with the potential to write a policy inclusive of retroactive risk should do so.

Is it necessary to join a group with no risk?

I just think that requiring the purchase of tail, in order that the physician would join the group with a clean medical malpractice history is unrealistic and unnecessary. Occurrence policies, of course, render the discussion about tail moot. Occurrence policies contain tail, built into the cost of the annual premium. If we all carried occurrence policies, there would be no deferred tail to contemplate.

There are two types of policies:

Occurrence or claims-made. Occurrence policies charge 2.5 to 3 times more in annual premiums because they pay for the long term cost of coverage (tail) each year.

Claims-Made Policies do not include this long term cost. This is a pared down annual premium.

Claims-made insurance provides coverage only for incidents that occurred and were reported while you are insured with that carrier. Thus, both the incident and the filing of the claim must happen while the policy is in effect.

If you drop a claims-made policy, you are not covered for any suits filed later unless you pay for what is known as “tail coverage,” the term used for an extended reporting endorsement. Tail coverage is expensive—often three times the amount of an annual premium—but it's essential to be insured for any claims that could arise later.

Claims Made Insurance

I would also argue that this deferred ‘tail’ cost should be considered part of the ‘cost of malpractice insurance’ for each physician. Referring to one of the largest medical associations in the country, The American College of Physician’s, I read that 97% of young physicians entering a new practice are offered malpractice insurance as an employment benefit. And, nearly all of these policies are "claims-made" insurance. The problem with claims made insurance is both retroactive and prospective risk is not always contemplated properly.

Tail Insurance

If you are one of these physicians who is employed by an institution, then this is a question which should be addressed.

If the policy that is carried by the group is "claims-made" , than you know that additional insurance coverage will be necessary if you ever leave the practice. This is important because you are liable for malpractice acts performed during the time in which you were employed by the previous medical group.

The additional coverage is known as "tail insurance." Tail insurance will provide malpractice protection for acts committed when covered by a "claims-made" policy by your prior Carrier, even if you are now covered by another insurance carrier . The cost of "tail insurance" is a one-time premium that can be as much as 2 to 3 times a typical annual malpractice insurance premium.

Stand Alone Tail Insurance to protect you

If you, for some reason left a group without purchasing tail, and now months (or years) have passed), you should know the realistic risks of looking for employment or partnerships with that ‘blight’ on your past record.

It is so compelling to remove that history of potentially being sued with no coverage, that the industry has now responded with a product – a stand-alone tail insurance product. We recently helped one Neurosurgeon purchase a stand-alone based upon an underlying practice that ended years ago, without tail. Our independent tail policy allowed him to take the job at the hospital adhering to the contractual requirement of a tail in place. Additionally, his tail was in place protecting his assets and his family from future claims.