Our Thinking

Like all insurance products, medical professional liability coverage is priced according to risk. And while so-called “nuclear verdicts” grab attention, there are actually a number of considerations that factor into the calculation of your premium.

State—Where you practice is a major factor when calculating your premium. Each state has its own laws regarding medical liability. Statutes of limitation, the periods during which a claim can be filed, differ significantly. In a few states, the period is just one year, but one state, Maryland, allows claims reported within five years. The most common periods are two or three years.

A few states have discovery periods that allow for the fact that some injuries take several years to show up. These discovery periods could extend the claim reporting period for several years.

A number of states have legislated caps on judgments, limiting the amounts juries can award. These caps help slow the increase in premium rates. (It should be noted that the American Medical Association has long campaigned for caps on awards and other forms of tort reform.)

Specialty— Some specialists are more likely to be sued than others. Surgeons and obstetrician/gynecologists rank among those most likely to be sued, and that is reflected in their malpractice premiums. Pediatricians and family practitioners are among the least likely.

There is concern that the cost of liability insurance for higher-risk professions in states where there is little or no regulation on awards will discourage physicians from practicing there and thus limit the availability of health care to citizens of those states.

Another major factor: Your claims history.

If you are sued and the claim is paid, whether by settlement or court action, the payment will be reported to the National Practitioner Data Bank (NPDB), which is maintained by the U. S. Department of Health and Human Services. Insurance companies refer to this database, which also includes reports of any disciplinary actions. The existence of a paid claim will increase your premium. With multiple paid claims, an insurance company could refuse to insure you.

(You will be notified if the NPDB has received a report of a claims payment or other reportable action on you. You can request a record of the report or your total history.)

Consider that your answer to almost every application question figures into the calculation of the premium. (Do make sure your answers are complete and accurate. With an inaccurate application, the insurance company could have grounds to refuse to pay a claim against you.)

Your choices affect the cost.

Obviously, your premium increases with the amount of the benefit. But there are other choices that will affect the premium as well.

• Are claims to be paid on a Claims-Made or on an Occurrence basis? Occurrence policies cost more, because they pay any claim paid while the policy was in force, even when the claim was reported after the policy terminated. Claims-Made policies, on the other hand, pay only for claims both made and reported during the policy’s active period.
• If it is a Claims-Made policy, does it include an optional Extended Reporting Period, usually called tail coverage, to handle claims made after the policy’s active period?
• Is there a consent to settle provision? This provision gives you control over whether a settlement can be offered. With it, the insurance company must have your written consent before any such offer is made. This is important, because a settlement payment will be reportable to the NPDB. If there is a consent to settle provision, be sure to look for a hammer clause that could make you responsible for the difference between the proposed settlement amount and a judgment won in court.
• Check on the coverage for legal costs. They can be considered either inside or outside the benefit amounts. If they are inside, any amounts paid for legal costs are subtracted from the amounts available to pay a judgement or settlement. With outside language, legal costs are paid in addition to the claim payment.