Bowman Insurance and Benefit Services

Purpose of Professional Liability Insurance

Professional Liability Insurance, which is often referred to as Malpractice Insurance, financially protects a person who faces claims of negligence.  For Dentists, professional liability insurance is utilized when a client sues the dentist over complications that resulted from a procedure.  The complications could have arisen out of an accident, could never have been prevented, or could have been the direct result of poor diligence.  The lawsuit could be totally groundless.  But any claim will be measured against the standard of care expected of dentists.  No matter the situation, great malpractice insurance protects the dentist from accidental mistakes or a perhaps more careless, preventable error.

In the United States, all claims against dentists average about $300,000.  Some claims will pay small sums to fix errors, whereas other claims pay millions.  In March 2009, a jury awarded $10.2 million over a wrongful death of a 21-year-old who had his wisdom teeth extracted.  A series of bad operations to repair a 29-year-old woman’s jaw led to a $14.8 award in September 2008.

State Variations in Professional Liability Insurance

Some states have programs that limit awards to claimants; the programs are commonly called the State Fund.  A dentist who chooses to participate in the program will pay a yearly fee to the Fund, and any lawsuits against that dentist are limited to awards set by that state’s law.  The Indiana Patient Compensation Fund caps payments to claimants at $250,000.  The Fund is not insurance, however.  A dentist only limits his risk to financial loss by participating in the State Fund.  So, when participating in the Fund, a dentist purchases a professional liability policy that reflects his participation in the State Fund.  Kentucky does not have a State Fund.

Types of Professional Liability Policies

There are two forms—Claims Made or Occurrence—and you have to choose one or the other.  The difference is not in coverage, exclusions, or conditions; those are the same.  They differ in how coverage is triggered.  An Occurrence policy covers damage or injury that occurs during the policy period.  A Claims Made policy covers damage or injury based on when the claim was first made.

If you have a Claims Made policy from the start of your career to the end of your career, you are covered for a lawsuit that occurs while the policy is active.  When you retire and the policy term has ended, you no longer are covered by your malpractice insurance.  In order to extend that coverage, you will likely want to purchase Extended Reporting Coverage (ERP), commonly called Tail Coverage.

If you have an Occurrence policy from the start of your career to the end of your career, you are covered for a lawsuit as long as the damage or injury occurred during a time that you held the policy.

Claims Made policies typically have less expensive premiums for the first five years, where yearly increases to the premium should be expected until the premium reaches its mature level.  Additionally, Claims Made policies typically have less expensive premiums than Occurrence policies.

It is not true, however, that Claims Made policies are less expensive than Occurrence policies.  In an Occurrence policy, the dentist is essentially paying for tail coverage in the yearly premium.  In a Claims Made policy, the dentist can refuse Tail Coverage.  The purpose of insurance is to have good coverage with no gaps in coverage.  A dentist who does not buy Tail Coverage introduces a gap in his coverage.

Switching Types

In the simplest of circumstances, a dentist would choose between Claims Made and Occurrence and stick with that choice for their career.  But this doesn’t always happen.  Sometimes, an employer will require its employees to use an Occurrence policy.  Sometimes, a dentist wants to switch from an Occurrence to Claims Made to save money on their yearly premium.

If a dentist switches from a Claims Made policy to an Occurrence policy, the dentist will need to make sure the new policy will pick up its prior acts.  Because an Occurrence policy covers events when they occurred, the policy will need to “backdate” to cover events that occurred before the policy was in place..

If a dentist switches from an Occurrence to a Claims Made policy, the dentist will eventually need to purchase tail coverage when the dentist retires and the policy expires.  Because a Claims Made policy covers claims when they are made, the policy must be active for coverage to be in effect.  To keep the policy active, the dentist purchases an “extended reporting period” to allow for coverage even after the policy expires.

An important part of a policy is Prior Acts coverage (less frequently called nose coverage).  An insurance company may pick up a prior acts date, and therefore transfers the retro-active date for an old policy to a new insurance carrier, which eliminates the need to purchase tail coverage from the last carrier.  (Nose coverage is usually less expensive than purchasing tail coverage from the old carrier.  Tail coverage typically costs 2-3 times the expiring premium.)

Limits

The Limit of Insurance, also called the policy limit, limit of coverage, or limit of liability, is the maximum amount the insurance company will pay.

The insurance company places a limit of insurance on each claim.  For most policyholders, the minimum limit of insurance that dentists are required to carry is $1 million per claim.  Higher limits are available.  For dentists participating in the State Fund, the limit of insurance on each claim is automatically $250,000.

The insurance company places a limit of insurance on total losses occurring within the policy period, or aggregate.  For most policyholders, the minimum aggregate limit of insurance that dentists are required to carry is $2 million.  Higher limits are available, and most dentists choose a higher limit.  For dentists participating in the State Fund, the aggregate limit of insurance is automatically $750,000.

Limits of Insurance can be shared or separate.  Typically, a policy covers one person, or dentist.  But if multiple people or multiple entities (like a business) need to be covered, policies offer shared or separate limits.  In shared limits, each person or business share up to the single limit.  In separate limits, each person or business have their own limits of insurance.  Separate limits, therefore, increase the ceiling to which coverage extends.

Features

Defense – Malpractice insurance should cover all lawsuits, even when frivolous.

Defense Costs – Defense costs should be paid without reducing the dollar amount available to cover settlements or judgments.

Right to Approve Settlements – No lawsuit should be settled without your consent.

First Aid – If someone is accidentally hurt during treatment, medical expenses are paid.

Assumed Liability – In a hold-harmless agreement, contractual liability coverage is included up to the policy limit.

Involvement – Dental society, hospital committee, standards review, or other professional board service includes coverage up to the policy limits.

Substitute Dentist – Called Locum Tenens, a dentist substitutes for you, and any care he offers is covered while he is substituting for you.

Defendant’s Reimbursement – Know how much is allotted for your expenses and lost time in a lawsuit against you.

Employment Practices Liability – Attorney’s fees and court costs covered when an allegation of sexual harassment, discrimination, or wrongful termination is made against you by an employee.