Angela Alkire, J.D.
Assistant Vice President of Operations
As a psychologist, having professional liability insurance, also known as malpractice insurance, is critical for your financial well-being, but the kind of coverage will depend on your needs.
Occurrence policies provide coverage for incidents that occur during the policy period, regardless of when the claim is reported. Claims-made policies cover incidents that happen while the policy is in force, and the claim must be reported during that same period. Once a claims-made policy has expired, there is no coverage (unless a “tail,” also known as an extended reporting period), is purchased.
It can be confusing, so let’s look at a couple of examples:
- Your occurrence policy is in place from 1/1/17-12/31/17. You are served with a lawsuit on 8/1/18 for an incident that happened on 5/1/17. Because the date of the alleged act occurred during the time the policy was active, you are covered. Note that there is still coverage even though the policy was not active when the claim was reported.
- Now, assume the same policy period of 1/1/17-12/31/17. You are served with a lawsuit on 4/1/17 for an incident that happened on 10/1/16. While the claim was reported while the policy was active, the underlying incident pre-dates the policy period, and, as such, there is no coverage.
- Your claims-made policy is in place from 1/1/17-12/31/17. A patient alleges you made a sexual advance on 2/1/17 and reports the claim on 9/1/17. You are covered because both the alleged incident, and the date the claim was made, fall within the policy period.
- Now, assume the same policy above was cancelled on 8/1/17. Unless you secured tail coverage, the claim wouldn’t be covered because the claim date falls outside of the policy period.
One of the main differences between policy types is the initial cost. Occurrence premiums are a bit higher than claims-made premiums over the first few years. During the first year, a claims-made premium is roughly 25%-35% less than an occurrence premium. The rationale for this is that claim activity is less likely in the first few years of practice. As a practice matures, there is an expectation of reported claims – hence the scaled premium. A claims-made premium is typically in line with an occurrence premium within 5-7 years.
Occurrence premiums are higher in the first few years because companies must collect an adequate amount of premium to cover future losses for incidents that happened in the past while the policy was in force. Occurrence policies can offer peace of mind for retirees – by having coverage during your years of practice, if a claim is filed later you’ll be covered and won’t need a tail.
With a claims-made policy, you need to maintain continuous coverage if you retire, stop practicing, or change carriers. You can do this by either securing a tail, or by purchasing prior acts coverage. A tail extends the time to report claims beyond the last day of your policy, it doesn’t extend coverage into the future.
With an unlimited tail, the time to report claims is extended indefinitely. Limited tails are also available for shorter periods of time. After this time elapses, there is no coverage for any future claims. You must secure a tail within 90 days of terminating a claims-made policy.
The cost for an unlimited tail is roughly 2x the last annual premium, and under certain circumstances they are free. For instance, The Trust provides a free, unrestricted tail with every claims-made policy upon retirement, death or disability, while other carriers require that you’re claims-free for five straight years to get the free tail upon retirement.
The other option for continuous coverage with a claims-made policy is to secure a “nose,” also known as “prior acts” coverage from your new carrier. They will then assume liability for any new claims made from your previous years of practice, back to your prior carrier’s retroactive date, or the earliest date of your claims-made coverage. The premium with the new carrier is based on your retroactive date, so there is no additional cost.
When choosing the right coverage, you should weigh your options carefully, keep in mind that no two policies are alike, and remember that an informed buyer is a smart buyer.