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Legal Corner
Understanding Your Professional Liability Policy
Kathleen A. Westfall, Esq., Kerr Russell and Weber, PLC
Professional liability insurance is important to phy- sicians for various reasons. Its primary purpose is to fund the costs to defend claims alleging pro- fessional negligence and to fund the payment of any loss determined by settlement or judgment. Physicians practicing in Michigan are not mandat- ed by state law to maintain professional liability insurance. However, as a practical matter, physi- cians generally must maintain professional liability insurance as a condition of medical staff privileges at hospitals and other facilities and to contract with health plans
To understand and limit potential risk exposure, physicians should familiarize themselves with the terms of their professional liability policy, par- ticularly if such insurance is maintained on their behalf by a hospital or other organization. This article summarizes some of the key components of a professional liability policy which physicians should understand.
Type of Professional Liability
Insurance Policy.
There are two types of professional liability in- surance policies—an “occurrence-based” policy and a “claims-made” policy. An occurrence pol- icy typically covers an alleged act or omission of professional negligence which is alleged to “oc- cur” during the policy period, even if the claim is asserted against the physician and/or reported to the insurer after the policy period ends. Under a claims-made policy, the alleged act or omission must occur within a time frame defined in the policy, and the claim must be asserted and report- ed during the policy period or within any defined time following the end of the policy period in order to obtain coverage under the policy.
Limits of Liability Coverage.
Insurance policies generally impose limits of liability coverage for each claim asserted against a physician during the policy period (usually 1 year), as well as the total limit of liability coverage for the policy period (also known as the “annual aggregate”). Each policy period generally has its own limits of liability per claim and in the annual aggregate. It is important for a physician to un- derstand a policy’s limits of liability per claim and in the annual aggregate to assess the physician’s potential risk exposure in the event one or more claims result in losses exceeding available limits of liability. Importantly, attorney’s fees and other de- fense costs normally do not erode (i.e., reduce) the per claim and annual limits of liability provided by physician professional liability policies.
Applicable Dates of Coverage.
Physicians should be aware of the applicable policy period and the start and end dates for
such policy period. In addition, physicians should understand whether the policy furnishes cover- age for dates of service which extend prior to or after the policy period. For example, sometimes
a claims-made policy will define a “retroactive date,” which is usually a date occurring before the inception of the policy period, sometimes referred to as “nose coverage.” When a retroactive date is provided in a policy, the policy will cover claims alleging acts or omissions which occur on or after the retroactive date and through the end of the policy period, assuming the claim is timely report- ed. Similarly, policies written on a claims-made basis typically permit physicians to purchase, for payment of additional premium, an extended reporting endorsement—commonly called “tail coverage”—to insure claims which are asserted
8 Detroit Medical News
First Quarter 2022