The Basics
In 1899, a small group of doctors pooled their resources to protect their reputations and assets from a newly discovered risk: healthcare liability.
When drafting the insurance policy to bind them all together and shield them from this risk, they sought to ensure adequate financial protection for decades of practice. To achieve that objective, the doctors chose what would later be called occurrence coverage.
Occurrence coverage became the industry standard for the next 70 years; however, when healthcare liability claims spiked during the 1970s, most insurance companies stopped offering occurrence coverage and only offered claims-made coverage, which is more favorable financially to the insurance companies. Both policy types remain today.
Occurrence: Occurrence coverage is triggered the moment treatment occurs, regardless of when an eventual claim is made. For example, if a claim is made today based on treatment rendered in 2011, the 2011 occurrence policy responds.
Claims-made: Claims-made coverage is triggered when the claim is made. For example, if a claim is made in 2016, based upon treatment rendered in 2011, the 2016 claims-made policy responds, as long as the healthcare incident occurred after the policy’s retroactive date. (The policy’s retroactive date is the date after which treatment must occur to trigger coverage.)
Though the above distinction might seem like an insurance technicality, the reality is that selecting your policy type is one of the most significant decisions you’ll make when buying professional liability coverage for two reasons:
1Limits With occurrence coverage, you receive a separate set of limits every year you have the coverage. Also, occurrence policy limits remain in place after the end of the policy period to pay claims arising from healthcare incidents occurring during the policy period.
In contrast, with claims-made coverage, only the then-current policy limits are available to pay claims made during the policy period, and even then only if the treatment occurred subsequent to the policy’s retroactive date.
2“Tail” Coverage Because claims-made policies do not cover claims made after the termination of the policy, you are required to secure "tail" coverage (an extended reporting endorsement) when you move your coverage from one carrier to another or stop practicing.
If a claim is made against you, and you have cancelled a claims-made policy, you have no coverage unless you have either secured tail coverage or your new carrier covers your prior acts back to your retroactive date. Tail coverage is generally expensive. In fact, depending on the state, tail coverage is usually approximately 140-220% of your current, undiscounted rate. Further, payment for tail coverage is typically due in full and must be paid within 30-60 days of policy cancellation. Some companies will provide free tail coverage in the event of death, disability or in some retirement circumstances. Occurrence policies do not require tail coverage.