By Matt Gracey and Dan Reale
Many physicians are not aware of the importance and relatively low cost of purchasing separate-entity coverage for their practice. A separate-entity layer of coverage can protect the physician from a recorded loss if the claim can be settled under separate-entity coverage. This is a real advantage if the physician can avoid having a practice entity claim counted against them. Separate-entity coverage can save the physician a great deal of time, frustration, the risk of much higher premiums, and/or even cancellation of their coverage altogether. The benefits of this low-cost supplemental coverage should not be overlooked if you wish to avoid the old adage of being caught “penny wise and pound foolish.”
Physicians have a difficult task in determining how much malpractice coverage they need to protect them from a claim. Ideally, your limits of insurance should be adequate to cover you and your practice in any “worst case” event. Those who simply look for the lowest premium amount force more personal risk upon themselves than they bargained for – or rather, failed to bargain for. Because each practice is unique, you should discuss whether you carry adequate insurance, along with all the coverage available to you, with a licensed and professional insurance agent on a regular basis.
Malpractice insurers typically offer a “shared” limit of coverage for the entity at little or no extra premium charge. Shared-entity coverage forces the named insured physician(s) to share their individual coverage limit with the practice entity. Every malpractice policy should identify the registered practice name along with each physician regardless of whether you have a shared or separate limit of coverage for the practice entity.
The premium amount to purchase separate-entity coverage is roughly 10% – 30% of the physician’s annual premium rate. Larger physician groups are more likely to be charged near 10% of each physician’s annual premium rate. Separate-entity coverage will usually stack onto the physician’s individual coverage, where the premium rate is often less than if you chose to purchase higher individual coverage limits. This is why we recommend purchasing separate-entity coverage and benefiting from stacking your coverage before you consider purchasing higher liability limits.
Consider that an estimated 2/3 of all malpractice cases arise from “communication” errors rather than from a missed diagnosis or surgical error by the physician. If the claim is not directly attributed to the physician, then this is often referred to as a “back office” type claim. Carrying separate-entity coverage will often satisfy a back-office claim without requiring the physicians’ individual coverage assistance. This can also relieve the physician from having a report filed against them with the National Practitioner Data Bank (NPDB). Moreover, the physician may retain their loss-free premium discount rather than paying a higher premium surcharge or possibly avoid being cancelled all together.
Many insurance carriers will stack the entity limit onto the physician’s individual coverage limit when both are named in a claim or lawsuit. For example, a $250,000 individual physician’s limit may stack onto a separate-entity limit of $250,000 and bring a combined $500,000 liability limit to settle the claim. There is the possibility that the physician’s coverage may not be required and they may be insulated from a back-office-type claim described above. There is also the possibility that both the physician’s limit and the entity limit are required to settle the claim. Simply put, these significant advantages are available only when separate-entity coverage is purchased for the practice.
At the bottom of this article are a few common claim scenarios in which physicians neglected to carry separate-entity coverage and experienced serious consequences as a result. Many physicians were led to believe the common falsehood that by limiting their malpractice coverage they would become less of a target for lawsuits. First, you cannot insulate your practice from a lawsuit for any reason (except under sovereign immunity for non-profits). The risk of a lawsuit being made has never changed regardless if there is inadequate coverage or no coverage at all. Plaintiff attorneys are making a much more proactive stand now by taking action to make examples of physicians who do not carry adequate coverage. Some physicians are simply willing to take on more personal risk than others, but it is best to know all the options that are available to you in any case.
Since malpractice rates have fallen to their lowest level in years, you can now shop for coverage bargains rather than leaving a gap in your coverage. You may be surprised how low premium cost can be to close any coverage gap. Of course, nobody wishes to be caught “penny wise and pound foolish” and then be forced into these difficult outcomes described below.
Common Claim Scenario #1 – A patient fails to receive a problematic test result because it never reached the physician and was not discovered until many months later. If there is only shared entity coverage (not separate), then the claim must be settled by the physician’s individual limit and reported against them with the NPDB. The physician will likely lose their claim-free discount, pay an additional premium surcharge, or maybe have their coverage cancelled altogether. This is how a physician may be forced into the non-standard, secondary insurance market where the premium cost is greater for limited insurance coverage. Had the physician carried separate entity coverage, then the claim might have been resolved without requiring the physician’s individual coverage, the penalty of higher premium, and/or a report to the NPDB might have been avoided.
Common Claim Scenario #2 – A licensed practice employee is sued along with a supervising physician when the physician carries only shared entity coverage. Again, there is no separate entity coverage to manage the claim and any liability must be charged against one or more of the physician’s individual coverage limits. In a recent claim it was necessary to charge a second physician that was not involved with the patient simply because the first physician’s coverage limit was not sufficient to settle the claim. Although the second physician never actually saw the patient, their premium was increased along with the first primary physician because both policies were needed to settle the claim. The second physician absolutely would not have been involved if separate entity coverage had been available.