Basic Medical Malpractice Insurance Glossary
A carrier that is licensed and authorized to write insurance in a particular state using rates, rules and forms that have been approved for use by that state’s Department of Insurance (DOI). These entities are subject to the highest level of regulatory oversight and scrutiny.
Annual Aggregate Limit
For claims-made policies, the annual aggregate limit is the maximum amount the carrier will pay for all covered claims first made against the insured during a given policy year. For claims-made and reported policies, the annual aggregate limit is the maximum amount the carrier will pay for all covered claims first made against the insured and reported to the carrier during a given policy year. For occurrence policies, the annual aggregate limit refers to the maximum amount the carrier will pay for all covered claims arising from incidents that occurred during a given policy year.
A type of insurance policy that allows the carrier to make assessments against insureds over and above the original premium charged to assure sufficient reserves and capital surplus are maintained.
The termination of an insurance policy either by the carrier or the insured prior to the expiration of the current policy term. State law generally sets out the required notice and acceptable reasons for cancellation or non-renewal of medical malpractice policies by the carrier, including: non-payment of premium; mutual consent of the parties; fraud or material misrepresentation; revocation or restriction of the healthcare professional’s license; or an increase in the hazard insured against.
An express, written demand upon an insured for money or services as compensation for civil damages.
A type of policy that offers coverage for a claim arising from a healthcare event that not only occurred on or after the retroactive date (as set forth in the Declarations Page of the policy), but also was first made against an insured during the policy period. Claims-made coverage is generally inexpensive at first, and gradually increases or “steps up” over a period of time (commonly five years) to a “mature” claims-made premium.
Consent to Settle
A policy provision that requires an insured’s consent before the carrier may settle a claim on behalf of the insured. An example of sample language: “Written consent of the first named insured only is necessary and sufficient for the Company to settle any claim or other matter brought against an insured facility or its agents.”
A discount applied to the policy premium based on underwriting criteria.
An increase applied to the policy premium based on underwriting criteria.
Issued by a carrier along with the insurance policy, this document states basic information about the policy, including policy period, types of insurance coverage, limits of liability, premiums due and coverage restrictions.
A type of claims-made policy provision that requires a claim actually be made against an insured during the policy period for coverage to apply.
An amendment added to an existing policy modifying its terms.
An accident. Typically, all injuries arising from (1) the same or related acts, errors, or omissions or (2) the continuous or repeated exposure to substantially the same harmful conditions is considered one event.
A policy provision setting forth a specific loss or risk the policy does not cover.
Extended Reporting Endorsement (Tail Coverage)
Applicable to claims-made policies, this coverage allows the insured to report claims first made after a policy termination date. However, such claims must result from an event that occurred on or after the retroactive date, but prior to the policy termination date. Some carriers waive the additional premium for this coverage in the event of an insured’s death, disability or permanent retirement.
A statutorily created entity designed to protect consumers by providing limited benefits for the payment of claims on behalf of authorized insurance companies that have become financially insolvent. State law typically prohibits advertising that policyholders are protected by a guaranty fund because the existence of a guaranty fund is not, and should not be, a substitute for the prudent selection of an insurance company that is well-managed and financially stable.
A policy provision that diminishes the value an insured receives from a consent-to-settle provision by reducing the available limit of liability if the insured refuses to provide consent to settle a claim. Under a hammer clause, the carrier is typically released from any exposure beyond the amount the claim could have been settled for had the insured given consent.
A healthcare provider (HCP) includes doctors, dentists, nurses, hospitals, facilities and other healthcare professionals who render professional services to a patient.
An event the insured knows or reasonably should know is likely to result in a claim such as death, amputation, loss of a major organ function, loss of vision or hearing, paralysis, permanent neurological injury or injuries related to the birth of a child.
A type of claims-made policy provision that does not require that a claim actually be made against an insured to trigger coverage, but rather requires only that the insured reasonably anticipate that a claim is likely to result from an otherwise covered incident. Claims-made policies with this provision are often referred to as “incident trigger” policies.
As used in this informational document, indemnity is generally intended to mean the payments made by an insurance carrier on behalf of its insured to cover loss arising from liability claims for which the insured has become responsible, and for which the insurance policy issued by the carrier provides coverage.
National Practitioner Data Bank (NPDB)
As described on the NPDB website (www.npdb-hipdb.hrsa.gov), the NPDB is “primarily an alert or flagging system intended to facilitate a comprehensive review of healthcare practitioners’ professional credentials. The information contained in the NPDB is intended to direct discrete inquiry into, and scrutiny of, specific areas of a practitioner’s licensure, professional society memberships, medical malpractice payment history and record of clinical privileges.” Federal law requires that each entity that makes a medical malpractice payment for the benefit of a physician, dentist, or other healthcare practitioner in settlement of, or in satisfaction in whole or in part of, a written claim or a judgment against that practitioner, must report certain payment information to the NPDB. A payment made as result of a suit or claim solely against an entity (for example, a hospital, clinic or group practice), that does not identify an individual practitioner, is not reportable. The purpose of this database is to identify and create a permanent record of HCPs who have repeated medical liability issues.
A carrier that is not licensed to do business in the jurisdiction in question, but which may otherwise be approved or permitted to do business there. Generally, the rates, rules and forms of such carriers are not approved by the DOIs, and they are not required to follow the stringent rules and regulations that an admitted carrier is required to follow. Generally, surplus lines carriers are the most common type of non-admitted carrier, although other non-admitted types include RRGs and captives. Non-admitted carriers provide an alternative way for insurance buyers, including those who cannot obtain traditional insurance due to underwriting considerations, to obtain coverage through a means other than the traditional commercial market when, for example, the type of insurance they are seeking is unavailable in the admitted market.
Termination of a policy at the expiration of a policy term by the decision of either the carrier or insured.
A type of policy that offers coverage for claims arising from an event that took place during the policy period.
Patient Compensation Fund (PCF)
Currently, eight states (Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina and Wisconsin) have statutorily established entities commonly referred to as patient compensation funds. These funds are designed to improve access to medical care by helping to stabilize volatility in the cost of medical malpractice claims and medical malpractice insurance. In these fund states, eligible HCPs can participate in the PCF (some states have mandatory participation) by maintaining specified primary insurance limits and paying a required fee or premium surcharge. Participating HCPs obtain a second layer of insurance coverage (similar to excess coverage) above and beyond specified primary insurance limits, as well as other statutory benefits in some cases (such as a hard cap on damages and mandatory pre-litigation claim review procedures). For example, a participating Indiana HCP can purchase a $250,000 per occurrence/$750,000 aggregate primary layer of coverage from an admitted carrier and pay the required surcharge. Before a patient can file a malpractice lawsuit against the HCP, the patient must submit the claim to a claims review process that requires three physicians to evaluate the HCP’s culpability. Only after that review is completed can the patient pursue litigation. If such litigation results in a verdict above $250,000, Indiana’s PCF would provide coverage up to the current statutory cap of $1,250,000. Any damages beyond this hard cap are not collectible. Many carriers in these eight states will not insure eligible HCPs unless they participate in the patient compensation fund.
Prior Acts Coverage
Similar to an extended reporting endorsement or tail coverage (See Glossary), this coverage allows the insured to report claims arising from events that occurred after the retroactive date but prior to the effective date of the insured’s current policy. Prior acts coverage is offered by an HCP’s new carrier when coverage is purchased under a new policy. In contrast, tail coverage is provided by the prior carrier and allows the reporting of claims after the expiration of coverage with that carrier.
Generally listed on the declarations page of a claims-made policy, this is the date after which an event must occur to be eligible for coverage under the policy.
A classification based on the number and amount of losses that can be expected from an HCP’s specialty and procedures.
A systematic approach used to identify, evaluate and reduce or eliminate the possibility of an unfavorable deviation from the expected outcome of medical treatment. The primary purpose of risk management is to prevent injury to, and the loss of assets of, patients due to negligence or perceived negligence.
Risk Retention Group (RRG)
An RRG is an insurance entity formed under one state’s law but, pursuant to federal law, may operate in any state after formal registration in those states. The registration process is simple when compared to the requirements placed on an admitted carrier. Because RRGs operate outside the regulations and oversight applicable to admitted carriers, their rates and forms are not reviewed or approved by the states’ DOIs. RRGs are generally owned by their members and, in order to join, HCPs may be required to make capital contributions beyond the payment of premium.
A person or entity that fails to meet standard underwriting criteria. In order to secure coverage (often only found in the surplus lines market), these insureds must pay higher premiums and/or be subject to special coverage restrictions.
Sometimes referred to as Excess and Surplus (E&S) insurance, surplus lines insurance is coverage secured through a non-admitted surplus lines insurance carrier. Surplus lines carriers are typically not regulated by states’ DOIs and do not file rates, rules or forms (other than for informational purposes). The coverage available through a surplus lines carrier is typically limited to those coverages that are not available from an admitted carrier and cannot be accessed merely to secure more favorable pricing.
See definition of “Extended Reporting Endorsement.”
The process by which the carrier evaluates policyholder risk, including the application of applicable credits and debits, and determines if non-renewal is warranted in cases where the risk no longer meets acceptable underwriting guidelines.