In the insurance world the question of how much coverage is enough probably is the most difficult question asked. Unfortunately, no easy answers exist that are appropriate for every doctor, but after considering all of the factors you will certainly be in a better position to make an educated decision on this important issue.

The average claim in Florida settles for around $300,000. However, the average is weighted sharply downward by the high percentage of nuisance cases settling for very minor sums. A serious case that goes to trial and is lost has an average exposure of over a $1,000,000, so practicing with $250,000 limits is certainly risky on one hand.

On the other hand, many believe that by purchasing higher limits of liability doctors become targets of the plaintiff attorneys and expose themselves to worse claims than by carrying lower limits.

One serious consideration against carrying low limits is this: if you practice with low limits of liability the insurance company claims managers say that they are much more likely to settle a case quickly because they do not want to expose the doctor or the insurance company to a possible multi-million dollar verdict against either of them. However, the newest twist to that thinking because of the passage of Amendment 8 is that maybe doctors would now rather have the insurance company eager to settle their case to avoid a “strike” on their claims record.

Compromises because of finances are a part of everyone’s world, so you are not alone if you cannot afford the highest limits you may want. With the present managed care environment and the numerous other financial challenges to your practice, most doctors today are stretching to pay the sharply increased malpractice premiums even at the lowest limits.

Remember that when you retire you will mostly likely need a “tail” for your claims-made insurance policy. The “tail” of your policy will extend your policy with one liability limit covering the rest of the exposure window, which in Florida typically is four years or a child’s eighth birthday in birthing cases. Your normal comfort with a low limit policy may well be broken since the “tail” limit does not get “recharged” each year as in a typical policy purchased annually. Consider raising your limits the last year of your practice so that you can obtain a higher limits tail when you retire.

Doctors to whom you refer patients or gain referrals from, as well as the doctors you cover for create much of your practice’s exposure to malpractice cases. How are those doctors handling their malpractice exposure? If they are primarily uninsured or carrying minimum liability limits, then you certainly do not want to practice with very high limits, as you can become their “deep pockets.”

Hospital connected specialists like anesthesiologists, radiologists, and emergency room doctors are often forced to carry higher limits by the contracts with their hospitals. These days many hospitals are starting to compromise with the doctors on this issue, but it still remains a point of contention with many. Many managed care contracts contain demands for $1,000,000 / $3,000,000 limits but most are now ignoring violations of these requirements. Lastly, if you practice in a group you undoubtedly have an obligation to purchase a certain minimum limit.

Some insurance companies only offer certain limits of liability. For instance, one active malpractice insurer tries to restrict doctors in Dade and Broward from carrying anything higher than $250,000 / $750,000, while another will only write limits of $500,000 / $1,500,000 or higher. Doctors with too many claims issues will find that most offers of coverage will only be for limits of $250,000 / $750,000. If you practice in a group, most insurers will only offer you the same limits as your partners.

The vast majority of Florida doctors are insured with a claims-made policy, not an occurrence form. The only occurrence forms in Florida today being purchased by physicians and surgeons are those offered either by the Florida Medical Malpractice Joint Underwriters Association (FMMJUA, or JUA for short) or by The Medical Protective Company. Occurrence policies are often used when retired doctors decide to go back and practice part time but know that they will not practice for five years or more.

Claims-made policy coverage responds, as the name implies, when claims are made against an insured versus when the incident happens in an occurrence form policy, like almost all automobile or homeowners policies. The popularity of claims-made policies stems from the savings that insureds receive in the first four years when a claims-made policy’s rates are lower than a comparable occurrence form. However, these early savings in a claims-made policy are offset by a costly tail component, which occurrence policy do not have, but most doctors do not care as they push tail costs into the future. Unfortunately, many doctors and office managers are often confused about the real facts surrounding these costly tail provisions and consequently pay way too much for a malpractice insurance policy because of their misunderstanding.

The claims exposure for doctors going into nursing homes is much higher than for their normal practice, so most malpractice insurance policies specifically exclude coverage for this exposure. Exceptions are sometimes made in the policy to cover you going into nursing homes specifically to see your own patients, and for very limited practice in nursing homes. My best advice is to ask your insurer if you are covered. If you are not, then you can ask for an endorsement or letter from them allowing for coverage of some limited nursing-home practice. Coverage for duties as a medical director of a nursing home is almost always specifically excluded in individual malpractice insurance policies, but separate stand-alone coverage is readily available from a few specific insurers. You might also check with the nursing homes themselves to see if their corporate policy, if they have one, will extend coverage for your medical directorship activities, which they sometimes will. Many Florida nursing homes have no malpractice insurance coverage at all, or very inadequate coverage, so doctors venturing into nursing homes run the risk of their insurance policy making them the unenviable “deep pocket” when claims arise.

The group and the new doctor probably have two different perspectives on this issue. The group prefers not to purchase retroactive coverage for the new doctor for two reasons. The first is the increased expense of a first-year claims-made policy versus a more expensive policy that includes retroactive coverage. The second reason is that the group does not want the new doctor’s previous practice risk exposure to potentially harm the claims record of the group with its insurer should the new doctor have a claim that is a result of his/her previous practice. The only reason a group would ever want to purchase retroactive coverage for a new doctor is to make its recruitment efforts easier.

From the new doctor’s perspective, they often prefer to have their new group pick up the retroactive coverage from their old practice so that they do not have to purchase an expensive “tail” to switch groups. For doctors coming from out of state, the option of not purchasing a “tail” and having the group purchase retroactive coverage instead is most often not workable since most insurers will not offer the out-of-state retroactive coverage.

In most claims-made policies a tail is called an “extended reporting endorsement” which, as it implies, allows claims to be reported to an insurer beyond a policy termination date. When a claims-made policy is terminated, there are two ways to handle the coverage without exposing the physician to an uninsured claim. The first way is to purchase a tail to complete the existing claims-made coverage. The second method is to purchase a replacement policy that includes coverage retroactively back to the same date as the previous claims-made policy. Selecting either option would still provide coverage so that if a claim is subsequently made there would be a policy to respond to the claim. Normally the preferred way to change companies is to replace the coverage with a policy that has the same prior-acts coverage and not purchase a costly tail. On average tails cost twice your annual premium, unless you are receiving a special discount, such as a new practitioner credit, in which case your tail will be even more expensive.

Companies do allow you to lower the limits for your tail but remember that tail coverage has to last through four years of claims exposure. Unlike your normal policy the limits are not recharged each year at renewal, so lower limits have a better chance of being exhausted faster.

Unfortunately, there is a very limited market that will even consider offering stand alone tail coverage if they did not insure you immediately prior to your need for a tail.

Standard companies’ offer tails that cover claims reported for an unlimited period. The incident must have occurred between your retroactive date and your policy termination date, but you can report it anytime as long as your purchase a tail.

You must be very careful that you ask questions about the tail provisions of substandard, excess surplus lines companies’ coverage. Beware that they often offer tails that cost 200% of your premium and are only effective for one year. In this case, when the tail expires after a year from purchase, any claims made against you will not be covered. Since the real risk of a claim runs for at least four years from the incident date, you are taking a big risk with only a one-year tail, and an incident report during the tail period will not trigger coverage like most standard market insurers.

At the termination of your practice if you are not vested with a free tail you should consider purchasing a tail so that coverage will be in place in the future to handle any claims from incidents that you have not already reported to your insurer. Also if you are going bare in the future you should decide if you want to purchase a tail for your previous exposure then go bare for any future incidents. You must weigh the cost of the tail against the cost of defending and paying a plaintiff in a case against you.

Purchasing a tail might also be smart if your policy has been non-renewed because of a claims issue and you now find yourself being forced to pay much higher rates for future coverage. Check the price of a tail policy before your termination date from your existing insurer. Once a tail is purchased, a first year claims-made rate can be very attractive for the following year. The tail and first year claims-made policy without retroactive coverage may be cheaper than a full retroactive coverage policy.

One of the most common problems with tails occurs when you move to a state in which your insurer does not offer coverage. Again, planning is the key. As soon as you know that you might be moving, inquire about coverage in the other state and if your current carrier won’t transfer your coverage, then try to find one of the companies that will.

The next most common reason that you are forced to purchase a tail is when you join or leave a group. Many groups’ contracts demand that when you join the group that you do so without any prior-acts exposure, which means you must buy a tail from your existing policy’s company if you want your coverage to remain continuous. Then, if you leave the group, you are often required to purchase a tail from the group’s insurer to satisfy the group’s concern about completing your coverage during the time you were practicing with them. Even though your prior-acts coverage can be brought and taken with you so that you don’t have to purchase a tail, this is often not in the employer’s best interest and can violate the group’s contract.

Yes, there is good news in this tail maze. Many companies offer provisions for free tail options. The standard in the marketplace today is that if you have been insured with the same company for at least five continuous years, and you fully and permanently retire from medicine you will receive a free tail. Some companies mandate that you must be at least 55 years. The least favorite ways to get a free tail from most insurers is in the case of your death or permanent disability. I advise that when you are within five years of retirement you focus on finding coverage with a company that you are confident will be firmly in the marketplace at least until your retirement so that the tail cost can be avoided. The vested tail issue can become contentious for groups with older doctors who are vested with free tails are less enthusiastic about losing their vested tails by switching the group coverage to insurers that might be offering lower rates.