Medical Malpractice Insurance Complete Guide

Medical Malpractice Insurance

What is Medical Malpractice Insurance?

Medical malpractice insurance is a type of professional liability insurance for physicians and other healthcare providers. In the event of an allegation of negligence or a lawsuit, medical malpractice insurance will cover expenses, including defense attorney fees, court costs and any settlements or judgments. Without malpractice insurance, physicians and healthcare providers can find themselves having to pay personally for these expenses, in addition to being held personally liable for any settlements or judgments resulting from a lawsuit. Many states require physicians (and often other healthcare workers) to have medical malpractice insurance. Even in states that do not have such requirements, it’s well-advised to have insurance, especially for physicians. According to a 2011 study in The New England Journal of Medicine, 7.4% of doctors in their sample had faced a malpractice claim in the previous year – that’s 1 out of every 14 doctors in any given year!

What does Medical Malpractice Insurance Cover?

Medical malpractice insurance covers allegations of negligence from the acts, errors and omissions of physicians and healthcare providers. It does not cover intentional or criminal acts or sexual misconduct. In the event of a medical malpractice lawsuit, insurance companies will provide a lawyer, included in the cost of coverage, to provide defense of the claim. Other services, such as risk management education, are available from many malpractice insurers.

Who Needs Medical Malpractice Insurance?

Any provider of healthcare services has a need for medical malpractice insurance, including, but not limited to, physicians, nurses, nurse practitioners, and physician assistants. In most states, physicians are required by law to have malpractice insurance, though the amount of coverage needed to satisfy these requirements varies. Also, hospitals often require physicians and other providers to have malpractice insurance as a condition of obtaining staff privileges. In any case, especially for physicians, it’s wise to be covered as there is a likelihood of facing a claim at some point in a healthcare provider’s career. Explore historic rate data by state and county and discover more about individual state regulations and insurance rates here.

Physicians

Physicians need to have medical malpractice insurance. There is no way around it. Not only is it legally required in many states, but, as mentioned above, it is often a condition of getting hospital staff privileges. Becoming a physician requires a large investment in both time and money, and proper insurance protects this investment. See below to read Buying Medical Malpractice Insurance: A Guide for Physicians to learn what physicians need to know to purchase medical malpractice insurance and understand their policies.

Nurses

All types of nurses should have medical malpractice insurance, including Registered Nurses (RNs) and specialized types of nurses, such as Nurse Practitioners (NPs) and Certified Registered Nurse Anesthetists (CRNAs). RNs should be able to easily acquire insurance for a very reasonable rate, often for less than $100 per year. Insurance premiums for NPs and CRNAs are more expensive and more variable. Rates for these specialist-nurses will depend on their underwriting profile and the state where they practice. Discounts on insurance for NPs and CRNAs who complete risk management courses and other continuing education programs are sometimes available.

Physician Assistants

Physician Assistants represent one of the fastest growing professions in the healthcare industry. Because they work in a variety of settings and have different levels of independence depending on the state they practice in, medical malpractice insurance can be highly individualized. As with physicians and nurses, completing risk management coursework can help lower medical malpractice premiums for Physician Assistants. Read more about insurance for PAs.

Podiatrists

With more Americans turning to podiatrists for foot, ankle and lower leg care, and their growing prominence in treating diseases such as diabetes, podiatrists are in high demand. Medical malpractice insurance for podiatrists is generally less expensive than for physicians, but it is equally important to protect podiatrists from allegations of medical malpractice. Learn more about the specific insurance needs of podiatrists.

Medical students

In general, medical students are unlikely to be named in a lawsuit and, if they are, the expenses are usually covered by the institution at which they are training. However, there are some exceptions to this rule and it is important to know about them. Read more on insurance for medical students.

Group Practices

Group practices most often purchase medical malpractice insurance under a group practice policy, rather than each physician and healthcare provider purchasing his or her own policy. This can allow for better pricing and customized insurance plans for the entire practice. Learn more about medical malpractice coverage for group practices.

Medical Spas

Medical spas, or medi-spas, first became common in the late 1980s. Since then, the medi-spa industry has grown to generate more than $12 billion in annual revenue. Medi-spas provide a variety of specialized treatments and services, including microdermabrasions, Botox injections, chemical peels, and even cosmetic surgery. Depending on the types of services offered, medi-spa insurance options can vary greatly. Find out more on medi-spas and medical malpractice insurance.

Hospitals

Hospitals require medical malpractice insurance, referred to as Hospital Professional Liability (HPL). In recent years, many hospitals, especially larger ones and those that are part of hospital systems, have begun self-insuring part or all of their professional liability risk. This is possible because of the size of the facility. Physicians, along with other healthcare providers employed at the hospital, will often be insured under the hospital’s self-insurance plan.

Other Types of Facilities that Require Coverage

Many other types of healthcare organizations and facilities may require medical malpractice insurance, including same-day surgery centers, long-term care facilities and behavioral health centers, among others. The specific insurance needs will depend on the type of facility, the location and the kinds of care and procedures the facility provides. Learn more on medical malpractice insurance options for these facilities.

Buying Medical Malpractice Insurance: A Guide for Physicians

Purchasing medical malpractice insurance can be daunting, but it doesn’t need to be with the right information. Physicians should understand the different types of insurance policies that are available, the types of insurers offering these policies and how to evaluate the financial strength of those insurers. Physicians also need to know how their specialty, practice location and claims history can influence their insurance costs. Finally, physicians should understand the different options for purchasing insurance, including buying directly from a single insurance company versus using an insurance agent or broker who can provide quotes from multiple insurance companies.

Types of Medical Malpractice Insurance Policies

Claims-made

Most medical malpractice insurance is offered on a type of policy called claims-made insurance. When insured by a claims-made policy, an insurer only provides coverage for claims resulting from services provided while the policy is continuously in effect, for claims that are reported during the period of continuous coverage. If a claim is reported after a claims-made policy is cancelled, the physician would no longer be covered for the claim, even if there was coverage in place at the time of the alleged malpractice incident. Tail malpractice coverage, or extended reporting coverage, (described below) should be purchased to provide coverage for claims brought after a claims-made policy is cancelled.

Claims-made policies typically begin with a lower initial premium that will increase gradually over a period of four to seven years, until the claims-made policy is at a mature rate. After that, premiums will only change if the insurance company makes overall rate adjustments or due to claim experience.

Occurrence

An occurrence policy provides coverage for a claim brought from service provided during the term of the policy, regardless of when the claims is reported, including after the policy has lapsed or been terminated. Occurrence policies are initially more expensive than claims-made policies, but, when an occurrence policy is cancelled, tail coverage does not need to be purchased. Occurrence policies are only available from a few insurers, due to the long-tail nature of medical malpractice, as it is difficult for insurance companies to predict claim settlements and judgements for claims brought years in the future from services provided today.

Claims-paid

Claims-paid policies have premiums based on those claims that were settled during the previous year, along with claims that are anticipated to be settled during the next year. Claims-paid policies are often assessable, either for a certain time period or indefinitely. This means that the policyholder may be charged extra fees, above and beyond the premium, to cover unexpected losses by the insurer, if the insurance company charged insufficient premiums to pay for claims. Claims-paid policies are not very common in the medical malpractice insurance industry and are not available in most states.

Tail malpractice coverage

Tail malpractice coverage, also known as extended reporting coverage, provides coverage for physicians who have cancelled a claims-made or a claims-paid policy. Once these types of policies have been cancelled, there is no coverage for claims brought from services provided while the policy was in effect. Tail malpractice coverage solves this problem by allowing reporting of claims brought after a claims-made policy is cancelled. Read more about tail malpractice coverage here.

Policy Type How Coverage Works Cost Availability
Claims-made Insurer provides coverage for claims resulting from services provided while the policy is continuously in effect and that are reported during the period of continuous coverage. Typically begins with a lower initial premium, which increases gradually over 4 - 7 years until the policy is at a mature rate. Most common type of medical malpractice policy; widely available.
Occurrence Insurer provides coverage for a claim brought from service provided during the term of the policy, regardless of when the claims is brought, even after the policy has ended. Occurrence policies are initially more expensive than claims-made policies. Only available from a few insurers.
Claims-paid Insurer bases policy premiums on those claims that were settled during the previous year, along with claims that are anticipated to be settled during the next year. Sometimes less expensive than other policy types. Uncommon and not available in all states.
Tail Coverage Insurer provides coverage for physicians who have cancelled claims-made or claims-paid policy. Typically 200% or more of the last policy premium, when purchased from the insurer the physician is leaving. Most common type of medical malpractice policy; widely available.

Types of Medical Malpractice Insurance Companies

Today, there are a number of types of medical malpractice insurers offering coverage, including:

Physician-owned insurers: these companies frequently have their origins in state medical societies. Some physician-owned insurers have converted to publicly traded stock companies. Physician-owned insurers can be one of two types:

  • Mutual insurance company: a mutual insurance company is privately owned by the policy holders. Profits earned by a mutual insurance company are either paid out to policy holders in the form of dividends or used to reduce future premiums. Mutual insurance companies are managed by their policy holders.
  • Reciprocal insurance company: a reciprocal insurance company, also known as a reciprocal inter-insurance exchange, is an unincorporated association of subscribing members that agree to pool risks. As with a mutual insurance company, the policy holders are the owners of the company and profits are paid out in dividends or premium reductions. A reciprocal insurance company is managed by an attorney-in-fact, reporting to the insurance company board of directors.

Commercial carriers: insurance companies owned by stockholders. Any profits are paid out to investors in the form of dividends.

Risk Retention groups: these companies were formed following the enactment of the Federal Risk Retention Act (RRA) of 1986. The RRA allows organizations and persons involved in similar businesses and activities to form their own liability insurance company. In a risk-retention group, the policyholders are also its members and owners. Risk retention groups are required to follow the insurance laws of the state in which they are domiciled.

Risk Purchasing groups: risk purchasing groups were also made available under Risk Retention Act of 1986. In contrast to risk retention groups, a risk purchasing group allows a group of insureds engaged in similar businesses or activities to band together to purchase insurance coverage from an insurance company.

Joint Underwriting Association: a JUA is a nonprofit risk-pooling association established by a state legislature as an insurer of last resort when affordable insurance coverage is not available. Many states have JUAs to provide medical malpractice insurance to physicians who cannot obtain coverage in the commercial marketplace.

Trusts: an alternative to traditional insurance, trusts provide coverage to members, who are usually required to provide a capital contribution in order to join. Depending on the state, trusts may not be regulated by state insurance departments or covered by the state’s guarantee funds in the event of insolvency. Trust members are retroactively assessable if the trust is unable to pay its losses. If a physician joins a trust, he or she may be obligated to remain assessable, even after leaving the trust.

Organization Type Structure Profits Require a Capital Investment? Covered by State Guaranty Fund?
Mutual Insurance Company Owned by policyholders. Profits are either paid out to policyholders in the form of dividends or used to reduce future premiums. No Yes, if the company is admitted in the state.
Reciprocal Insurance Company Unincorporated association of subscribing members (policyholders) who agree to pool risks. Profits are either paid out to policyholders in the form of dividends or used to reduce future premiums. No Yes, if the company is admitted in the state.
Commercial Carriers Owned by stockholders. Paid out to investors in the form of dividends. No Yes, if the company is admitted in the state.
Risk Retention Group Owned by policyholders. Retained by policyholders. Yes No
Risk Purchasing Group A group of insureds engaged in similar businesses or activities band together to purchase insurance coverage from an insurance company or risk retention group. A Risk Purchasing Group is not an insurance company. Do not have profits. No Yes, if the company is admitted in the state.
Joint Underwriting Associations Nonprofit risk-pooling association, established by a state legislature as an insurer of last resort when affordable coverage is not available. Nonprofit. No Yes
Trusts Members make a capital contribution to join. Retained by policyholders. Yes Depends on the laws of the state.

Checklist: Evaluating a Policy

Understanding an Insurance Company’s Financial Strength and Stability

It is essential for physicians to understand and be able to evaluate the financial strength and stability of potential insurers. This includes a company’s financial condition, underwriting standards and ratings. These factors may be even more important than premiums when weighing insurance options. Things to look for when evaluating a company include:

Surplus: The amount by which a company’s assets exceed its liabilities. This is the net worth of the company and determines its ability to assume risk and pay for unanticipated deficiencies in loss reserves.

Net Written Premium: The amount maintained by the company after it has paid for reinsurance.

Loss Reserves: The amount set aside for indemnity payments and loss adjustment expenses for open claims.

Ratios: a measure of the financial health of an insurance company, there are several ratios that can be used to evaluate a company, including:

  1. The ratio of net written premiums to surplus: shows the insurance company’s ability to assume risk. The strongest insurance companies will have a ratio as close to 1:1 as possible, though a ratio of up to 3:1 is considered a sign of company strength.
  2. Ratio of loss reserves to surplus: indicates the company’s ability to cover unanticipated reserve deficiencies. Regulators recommend that this ratio be 4:1.
  3. Loss ratio: the total amount of incurred losses as a percentage of earned premium.
  4. Expense ratio: the total amount of operating expenses as a percentage of earned premium.
  5. Combined ratio: a combined ratio of more than 100% indicates and unprofitable year for an insurance company and is a sign that some type of adjustment will be necessary to reduce the combined ratio and once again become profitable.

Ratings

Medical malpractice insurance companies are given ratings by independent analysts, based on the financial and operating strength of the company. These ratings provide a snap-shot of how a company is doing and what its long term prospects may be. Physicians should be familiar with the different analysts, especially A.M. Best Company, which is considered the leading insurance industry analyst. A.M. Best ratings range from “A++” (Superior) to “C-“ (Weak). Other rating analysts include Duff & Phelps, Moody’s, Standard & Poors’ and Weiss Research. Ratings are an important indication of the financial health of an insurance company, and it is advisable to avoid purchasing a policy from an insurance company with a poor rating.

Buying a Policy: Other Factors to Consider

In addition to understanding the financial health of a potential insurer, there are many other factors physicians should consider when deciding on a medical malpractice insurance policy. These factors could make a difference in how a claim is defended, how much protection is available, types of coverage offered in the policy, and many other things.

Consent to Settle: The insurance company must obtain the written permission of the insured physician prior to making any settlement with a plaintiff, if there is a consent to settle clause in favor of the insured in the policy. If there is no consent to settle clause, then the insurance company has the power to settle a claim as it sees fit, without the consent of the policyholder.

Cyber liability: These days, many, if not most, medical malpractice insurance policies include some level of supplementary cyber liability coverage in their policy endorsements. Cyber liability coverage attached to a malpractice insurance policy usually provides a limited amount of protection, separate from the medical malpractice insurance limit of liability. With both patient health data and other personal information stored in electronic health records, hospitals, health care facilities and even individual physician practices are all vulnerable to data breaches and attacks. Physicians should pay attention to the level of supplementary cyber liability coverage offered as part of the policy. Physician practices may want to consider purchasing additional cyber liability coverage to make sure they are protected in the event of a large data breach or other cyber-attack, as the supplementary coverage provided may not be adequate.

Death/Disability/Retirement: Free Tail Coverage Provisions: Medical malpractice insurance policies can vary greatly in their provisions in the event of death, disability and retirement. Many policies will offer benefits like free tail coverage automatically upon death and disability (depending on the nature of the disability), but there may be restrictions at retirement based on age and length of time with the insurance company. Especially for physicians who are considering retirement, these provisions can be very important and can influence when a physician is best able to retire with free tail coverage.

Defense Costs: The cost of defending a claim, including legal fees, court costs, attorney fees and expert witness fees. Defense costs can either be ‘inside’ or ‘outside’ the limits of liability for the policy, which is an important difference. If defense costs are inside the limits, then the cost of defending the claim is subtracted from the total amount of liability coverage available. For example, if a policy provides $1,000,000 in liability coverage and the defense cost is $150,000, then there would only be $850,000 left to pay for any settlement or judgement. If defense costs are ‘outside’ the limits of liability, then the cost of defending the claim will not reduce the amount of coverage, meaning that the full $1,000,000 would still be available to payout any settlement or judgement and the $150,000 in defense costs is assumed by the insurance carrier. Defense costs outside the limits of liability can be unlimited or capped with their own separate limit. For the insured, it is better to have unlimited defense costs outside the limits of liability.

Exclusions: A statement of specific items that an insurance policy will not cover. Physicians should understand the exclusions in their policy and be aware of claims or allegations their policy will not cover. For example, it is common for some policies to exclude any duties carried out as a Medical Director, which can be covered under a separate policy. Another common exclusion is payment for settlements or judgements for claims of sexual misconduct.

Incident Reporting: An adverse outcome or event that may become a claim. Some insurance policies will allow an incident to be reported to the insurance company as a potential claim prior to any suit actually being filed. Early reporting of an incident before it can become a claim may allow for intervention before an actual suit is filed against the healthcare provider.

Some insurance companies will only accept a “written demand for damages” as a claim, meaning a physician will have to wait for a demand for money or to be sued before the insurance company accepts the claim. This has two downsides for physicians. First, it can make it difficult for physicians to transfer insurance carriers until the claim has been filed, as a new insurance company will not want to insure a physician who is expecting to be sued. Secondly, it will not be possible to resolve the problem before an official suit is filed against the physician.

Limits of Liability: Insurance policies impose limits on the amount of coverage by claim and by year. For example, many medical malpractice insurance policies will have limits of $1,000,000/$3,000,000, meaning the insurance company will cover up to $1,000,000 per claim and provide up to $3,000,000 in total coverage for all claims in a given policy year. However, if a given claim is settled for more than $1,000,000, there would not be coverage for the amount exceeding $1,000,000. Similarly, if a physician faced several claims which were less than $1,000,000 individually, but collectively exceeded $3,000,000, there would be no coverage for the amount exceeding $3,000,000.

Locum Tenens: Provides insurance coverage for a substitute physician so that he or she can fill in for the regular physician policyholder without any need to purchase additional insurance coverage. For example, many physicians take time away from their practice for vacation, additional education, research or sabbatical work, or to deal with personal matters, such as pregnancy, family care or personal health issues. Locum tenens coverage allows these physicians to employ a substitute physician during their absence, with the substitute physician being insured under the absent physician’s own insurance policy. Insurers have different regulations surrounding Locum Tenens coverage, so it is important to check with your insurer to not only to be sure that this coverage is offered, but also to understand the details of the coverage and whether or not coverage is automatically extended to the Locum Tenens physician, or if additional requirements need to be fulfilled.

Notice of Non-Renewal: Insurance companies in many states are required by law to provide written notice in advance of when they intend to cancel or not renew coverage. Depending on state rules, this notice must be given a minimum amount of time before the cancellation takes effect. However, some insurance companies will provide advanced notice of non-renewal, prior to the legally mandated notice date. This will provide the insured with a longer window in which to shop for a new policy. It will also allow the insured to put this new policy into place before the old policy is officially cancelled. This is important because it is more difficult to obtain a new policy once a physician has a cancelled policy on his or her record.

Portability: The ability to take the policy you have and go to another state without having to buy tail coverage. Many insurance companies do not operate in all states. Physicians considering a move to a different state may want to look into the portability of their insurance coverage. If the policy is not portable, the physician might need to purchase tail coverage, which can be expensive, as well as finding a new insurance carrier.  An alternative is getting coverage from an insurance carrier that offers coverage in both the old and new state, eliminating the need to buy tail coverage.

Premium discounts and credits: Many insurers offer various types of premium discounts or credits to physicians for completing risk management coursework, membership in a particular professional association, being claims-free, part-time, or new-to-practice. Premium discounts and credits can be significant, so physicians should factor these in when comparing policy options.

Where to Buy a Policy

Medical malpractice insurance policies are distributed in three ways: 1. Through a Direct Writer; 2. Through a Captive Agent; and 3. Through an Independent Agent. All three modes of distribution will provide insurance coverage and customer service to the insured – so what’s the difference?

Direct Writers: Companies that sell their products directly to insureds using in-house agents and producers. Customer service functions are performed by the insurance company’s staff.

Captive Agents: Insurance agents appointed by a particular insurance company to market and sell only that company’s products. Captive agents are usually barred from representing other insurance companies. Customer service functions are provided by the agents and their employees.

Independent Agents: Insurance agents who contract with various insurance companies to market and sell their products. Independent agents typically represent more than one company. They will also perform customer service tasks. Unlike Direct Writers and Captive Agents, Independent Agents can often provide many policy options to physicians. Because they can shop coverage to many insurance companies, independent agents frequently find better rates or more appropriate coverage options for an individual physician.

There is no additional cost to using an independent agent or captive agent. Agents do receive a commission from the insurance company, which is already included in the premium amount.

Obtaining Coverage: What you Need to be Prepared

Regardless of what type of agent is used to purchase coverage, physicians will need to have certain things ready when they begin a search for a medical malpractice insurance policy. These may include:

  • A copy of the Declarations page (usually the first page of a policy) from the physician’s most recent insurance policy, as well as for any tail policy that has been purchased.
  • Claims loss runs for the past 10 years, or since the date the physician began practicing medicine, if less than 10 years. Loss runs are obtained from the current or any previous insurer.
  • A copy of the physician’s letterhead and current Curriculum Vitae (CV).
  • Additional materials, if applying for coverage for a corporation or for other individuals, as in a group practice.
  • Completed application form, including coverage history; information on physician education, specialty and types of procedures performed; practice details, such as location and number of hours worked; hospital privileges; and previous claims history.

Application questions and requirements will vary by insurance company, but it is important to provide accurate and complete answers in order not to jeopardize future coverage.

What’s in Your Medical Malpractice Insurance Policy?

Declarations page: the Declarations page is usually the first page of an insurance policy. It includes the name of the insurance company, the name and address of the insured, policy number, policy limits, policy period, premium amount and any deductibles that apply to the policy. The Declarations page will also list the retroactive date for the policy.

Insuring agreement: A standardized part of an insurance policy that describes the risks assumed by the insurance company and the nature of the coverage.

Endorsements:  Additional pages or sections in a policy that modify, expand or clarify the insuring agreement, based on conditions such as state regulations or the inclusion of supplementary coverage. Endorsements may modify a policy unconditionally or upon the existence of a certain condition.

History and Development of the Medical Malpractice System

The First Medical Malpractice Lawsuit

Medical malpractice lawsuits go back to the Middle Ages. The first recorded medical malpractice lawsuit was Stratton v. Swanlond, decided in 1374 by Chief Justice John Cavendish of the Court of Kings Bench in England. The case involved a plaintiff, Agnes of Stratton, who sued the London-based surgeon John Swanlond. Swanlond had promised to treat the plaintiff’s mangled hand, but, upon completing treatment, she was unsatisfied with the result and sued for breach-of-contract. This early case set an important precedent, with Justice Cavendish declaring that a physician should be held liable only if a patient was harmed as a result of negligence, and not merely if the physician was unable to provide a complete cure, but otherwise acted in an appropriate manner in treating the patient.

The Development of Medical Malpractice Insurance

Over the next several centuries, malpractice cases occasionally arose in the courts, but they remained uncommon until the middle of the 19th century. Between 1840 and 1860, cases in the United States involving medical malpractice claims rose by 950%. The reasons for this sudden increase are unclear, but factors including cultural changes, greater ease of transportation and communications, and changes in the practice of medicine itself may have contributed to the increase.

By the early 20th century, many physicians had joined state medical societies. These societies produced medical journals and gave physicians a forum to interact with their peers. At least one state medical society, the Massachusetts Medical Society, also began offering medical malpractice insurance coverage as an inducement to join. This new type of liability insurance was designed to protect physicians from financial ruin in the event of a lawsuit. Fortunately for physicians, for the next several decades, medical malpractice lawsuits remained relatively rare and relatively small, compared to today’s suits. But all this was soon to change.

Medical Malpractice Insurance Crisis and Reform

Beginning in the late 1960s and continuing into the 1970s, the United States experienced a medical malpractice insurance crisis. Rising numbers of claims against physicians and hospitals, often resulting in large judgements, led many malpractice insurers to exit the market. By 1975, in many states, it became difficult for physicians to obtain medical malpractice insurance for a reasonable rate, or to obtain any coverage at all.

States scrambled to address this new challenge. One of the biggest responses came out of California, in the form of the Medical Injury Compensation Reform Act (MICRA). Passed in September 1975, MICRA was the first medical liability tort reform act, and became a model for many other states. MICRA had the following provisions:

  1. Noneconomic damage cap of $250,000
  2. Attorney’s fee caps, which limit the amount an attorney can receive from a settlement
  3. A shortened statute of limitations for claims to be filed
  4. Binding arbitration
  5. Periodic payments, meaning physicians and hospitals can pay out an award over time

According to the RAND Corporation, MICRA has decreased medical malpractice defendants’ overall liability by about 30%, and, due to caps on both awards and fees, it may have led attorneys to be more selective on which cases they bring in the first place. MICRA also served as a model for several other states, but often with limited success. Many state supreme courts have rejected damage caps as unconstitutional, and California and other states have been criticized for not increasing the amount of these caps to keep pace with inflation.

State Laws and Tort Reform

In addition to the MICRA legislation in California, many states have passed reforms to their medical liability systems. Reforms generally fall under the following categories:

Damage Caps: Sets a limit on the amount of money that can be recovered in a suit. For medical malpractice cases, caps on certain types of damages are frequently instituted, such as caps on noneconomic damages (pain, suffering, and other noneconomic losses) or caps on punitive damages (for inappropriate, egregious conduct). Some states have also capped the overall amount of an award, but this is less common. Many states have instituted damage caps only to have them overturned by the state supreme court. The most common reason that damage caps are cited as being unconstitutional is interference with the right to trial by jury. To find out if your state has damage caps, click here.

Joint and Several Liability: Many states have statutes that limit the amount of damages that a defendant can be held liable for based on the amount of culpability the defendant is found to have. For example, if a physician is found to be only 25 percent responsible for a plaintiff’s injuries, then, depending on state law, that physician may only be required to pay up to 25 percent of damages. In other jurisdictions, all defendants may be considered responsible for all damages, meaning that even if the physician was only 25 percent culpable, he or she could still be on the hook for more than 25 percent of the damages. Many states have set percentages of culpability, under which defendants are considered only partially liable if they are found to be under a certain percentage at fault, but the percentage can vary from state-to-state. To learn about your state’s laws, click here.

Apology Laws: These are laws that allow physicians and healthcare workers to make statements of regret or apology to a patient who is harmed as a result of a medical error (or to the patient’s family or representatives), with these statements being inadmissible in court. Apology laws are intended to improve the relationship between physicians and patients, with the hope that patients will be less likely to sue a physician who admits an error and apologizes, and that it may be easier to come to a settlement in these cases rather than going through the lawsuit process.

Patient Compensation Funds: Seven states have created state-run funds that are intended to cover medical malpractice claims above a certain amount. Known as Patient Compensation Funds (PCF), these funds are set up to provide insurance to physicians and sometimes other healthcare practitioners, above and beyond their own personal medical malpractice policies. PCFs are supported by surcharges on physicians and healthcare workers to pay for this additional insurance.

Collateral Source Reform: this refers to whether or not a plaintiff must disclose sources of payment for medical bills to which they have access, such as health insurance. Whether or not collateral sources are considered can have a large effect on the amount of a final judgment; if collateral sources are considered, the award will generally be less, as it will only kick in after other sources have been exhausted. For example, if a plaintiff wins a case, but their health insurance will pay for 80 percent of the plaintiff’s future medical care anyway, than the defendants will only be liable for the remaining 20 percent. Collateral source does not affect the size of noneconomic damage awards. See more about your state’s collateral source rules here.

State Damage Caps Patient Compensation Fund Attorney Fee Limits Collateral Source Reform Joint Liability Reform Periodic Payments Apology Law
Alabama No No No Yes No Yes Yes
Alaska Yes No No Yes Yes Yes No
Arizona No No Yes Yes Yes Yes Yes
Arkansas No No No No No Yes No
California Yes No Yes Yes Yes Yes Yes
Colorado Yes No No Yes Yes Yes Yes
Connecticut No No Yes Yes Yes Yes Yes
Delaware No No Yes Yes No Yes Yes
District of Columbia No No No No No Yes Yes
Florida Yes No Yes Yes Yes Yes Yes
Georgia Yes No No No Yes Yes Yes
Hawaii Yes No Yes No Yes No Yes
Idaho Yes No No Yes Yes Yes Yes
Illinois Yes No Yes Yes No Yes No
Indiana Yes Yes Yes Yes No Yes Yes
Iowa No No Yes Yes Yes Yes Yes
Kansas Yes Yes No No Yes Yes No
Kentucky No No No No Yes Yes No
Louisiana Yes Yes No No Yes Yes Yes
Maine Yes No Yes Yes No Yes Yes
Maryland Yes No No No No Yes Yes
Massachusetts Yes No Yes Yes No No Yes
Michigan Yes No Yes Yes No No Yes
Minnesota No No No Yes Yes Yes Yes
Mississippi Yes No No No Yes Yes No
Missouri Yes No No No Yes Yes Yes
Montana Yes No No Yes Yes Yes Yes
Nebraska Yes Yes Yes Yes Yes No Yes
Nevada Yes No Yes Yes Yes Yes No
New Hampshire No No Yes No Yes Yes Yes
New Jersey Yes No Yes Yes Yes No No
New Mexico Yes Yes No No Yes Yes No
New York No No Yes Yes Yes Yes No
North Carolina Yes No No No No No Yes
North Dakota Yes No No Yes Yes Yes Yes
Ohio Yes No Yes Yes Yes Yes Yes
Oklahoma Yes No Yes Yes Yes Yes Yes
Oregon Yes No Yes Yes Yes No Yes
Pennsylvania Yes Yes No Yes Yes Yes Yes
Rhode Island No No No No No Yes No
South Carolina Yes Yes No Yes Yes No Yes
South Dakota Yes No No No No Yes Yes
Tennessee Yes No Yes Yes Yes No Yes
Texas Yes No No No Yes Yes Yes
Utah Yes No Yes Yes Yes Yes Yes
Vermont No No No No No No Yes
Virgnia Yes No No No No Yes Yes
Washington No No Yes Yes Yes Yes Yes
West Virginia Yes No No Yes Yes No Yes
Wisconsin Yes Yes Yes Yes Yes Yes Yes
Wyoming No No No No Yes No Yes

Glossary of Medical Malpractice Insurance Terms

  • Absolute liability – Liability regardless of fault or intent to do harm.
  • Adjudication – Legal process of settling a dispute or determining an issue in court.
  • Admitted assets – Assets that can be liquidated into cash in order to pay claims.
  • Admitted carrier – An insurance company that is licensed to sell insurance to the public in a given state.
  • Allocated loss adjustment expenses – Expenses paid for defense attorneys, expert witness and investigations that are specific to an individual claim.
  • A.M. Best ratings – Medical malpractice insurance companies are given ratings by independent analysts, based on the financial and operating strength of the company. A.M. Best Company is considered the leading insurance industry analyst, and rates companies with a range from “A++” (Superior) to “D-“ (Poor). Other rating analysts include Duff & Phelps, Moody’s, Standard & Poors’ and Weiss Research. Ratings are an important indication of the financial health of an insurance company, and it is advisable to avoid purchasing a policy from an insurance company with a poor rating.
  • Annual aggregate limit – For a claims-made policy, the maximum amount the insurance company will pay for all claims arising from events that occurred and were reported during a given policy year.
  • Arbitration – The use of an impartial third party to settle a dispute. Both parties in the dispute must agree on the choice of arbitrator. They must also agree in advance to abide by the arbitrator’s decision regarding the resolution of the dispute, including any award issued.
  • Assessable policy – Policies that can require policyholders to pay additional costs above and beyond their premiums to cover past company losses for which there are insufficient reserves. Certain types of medical malpractice insurance companies may have assessable policies, including trusts, joint underwriting associations, and certain types of mutual insurance companies.
  • Assets – The total financial resources and property owned by an insurance company.
  • Assumed premium – The payment an insurance company receives for providing reinsurance to another company.
  • Attorney-in-fact – The entity charged with managing an inter-insurance or reciprocal insurance exchange. The Attorney-in-fact has the authority to exchange insurance among the various subscribers (aka policyholders).
  • Cancellation – Termination of an insurance policy before its expiration date. Either the insurance company or the policyholder can cancel a policy. If it is cancelled by the insurance company, a formal cancellation notice that specifies how any unearned premium is to be returned to the policyholder must be provided, usually at least 30 days prior to the cancellation date.
  • Captive agents – Agents who sell insurance products for only one company. Though they do not work directly for the company, they are usually banned from representing other companies in the marketplace.
  • Claim – Another term for a lawsuit which demands money.
  • Claim frequency – Rate at which claims are made. Claims frequency is considered to be high when multiple claims are reported in a short time frame.
  • Claims-made policy – Insurance policy that only covers the insured while the policy is in effect. This means that, should the policy be terminated or not renewed, there would no longer be coverage for any incident that happened while the policy was continuously in effect. Claims-made policies are the most common type of medical malpractice insurance policies.
  • Claims-paid policy – Policies with premiums based only on those claims that were settled during the previous year, along with claims that are anticipated to be settled during the next year. Claims-paid policies are often assessable, either for a certain time period or indefinitely. This means that the policyholder may be charged extra fees, above and beyond the premium, to cover unexpected losses by the insurer should the insurance company have insufficient reserves.
  • Claims reserves – Amount of money that is set aside to meet future payments associated with claims incurred but not yet settled as of a given date.
  • Claim severity – The size of payment that an insurance company has to make on behalf of the insured. The larger the size of the indemnity payment, the greater the level of claims severity.
  • Consent-to-settle clause – Requires the insurer to obtain the written approval of the insured prior to settling a claim. However, some policies contain a hammer clause, which means that, if the insured does not agree to a claim settlement, then the insurer will no longer be liable for any additional funds to settle a claim or to cover defense costs accrued to continue to fight the claim, over and above the original settlement amounts. Physicians will want to have a consent-to-settle clause without a hammer clause, as it gives them more control over the outcome of the claims process.
  • Coverage trigger – An event that must occur to activate a liability policy. For an occurrence policy, the coverage trigger is the actual event, since coverage will be provided no matter when the claim is made as long as there was coverage at the time of the incident. Under a claims-made policy, the coverage trigger happens when the claim is made or, in some cases, when an incident is reported. A claims-made medical malpractice insurance policy may have either an incident trigger, meaning that the insurance company will accept a report of an incident and recognize it as a report of a claim, or a demand trigger, meaning that only a formal written demand for money or an actual suit is accepted as a claim. An incident trigger is more favorable for physicians, as it may provide an opportunity to alleviate a situation before it becomes a claim. Also, an incident trigger is advantageous as a new insurer is unlikely to provide coverage for an incident a provider is aware of but has not, but may, turn into a formal claim.
  • Credentialing malpractice report – Provides current information on a physician’s medical malpractice insurance policy and claims experience.
  • Date of incident – Also known as the date of occurrence, the date on which an alleged incident of malpractice occurred.
  • Date of reporting – Date an alleged incident or claim was reported to an insurance company.
  • Declarations page – Usually found on the first page of an insurance policy, it includes the name and address of the insured, as well as the policy period, amount of coverage, premiums and any restrictions in coverage.
  • Deductible – Amount an insurer deducts from a loss prior to paying for the loss, up to the policy’s limits. There are several types of deductibles associated with medical malpractice insurance policies. Voluntary Deductibles allow the policyholder to agree to pay a preliminary amount of a claim payment and, in exchange, the policyholder will pay a lower premium for assuming that risk. An Involuntary Deductible is assessed by an insurance company because of adverse risk characteristics of a policyholder, and does not provide a premium reduction. Deductibles can also be split between the policyholder and the insurance company, which is known as a Franchise or Quota Share Deductible.
  • Defense costs – The cost of defending a claim, including legal fees, court costs and expert witness fees. Defense costs can either be ‘inside’ or ‘outside’ the limits of liability for the policy. If defense costs are inside the limits, this means that the cost of defending the claim would be subtracted from the total amount of liability. For example, if a policy provides $1,000,000 in liability, and the defense cost is $150,000, than there is only $850,000 left to payout any settlement. If the defense cost is ‘outside’ the limits of liability, than it will not count against the total amount of liability, meaning that the full $1,000,000 would still be available to payout any claim, and the $150,000 in defense costs is assumed by the insurance carrier. Defense costs outside can either be unlimited or they can be capped with their own separate limit.
  • Direct writers – Medical malpractice insurance companies that sell their insurance products directly to customers using in-house insurance agents. Direct writers will also provide customer service functions for their insureds.
  • Direct written premium – The gross premium of an insurance company, before deducting any premiums paid to a reinsurer.
  • Dividend – A payment made to policyholders or shareholders. Dividends are not guaranteed, and are given out based on the insurance company’s financial performance or in the event of funds exceeding the amount needed to pay claims. Depending on the type of insurance company, dividends can be distributed either to policyholders as discounts on premiums, or dividends can be paid out to shareholders.
  • Domiciled – The state in which an insurance company is regulated and licensed to operate.
  • Earned premium – Amount of the premium that was earned by the insurance company for the coverage period that has elapsed.
  • Economic damages – Amount needed to compensate an injured person for an actual monetary loss. Economic damages include things like lost wages and medical expenses.
  • Endorsement – A form that modifies or adds to the provisions in an insurance policy. Endorsements can lengthen the period of reporting (such as an Extended Reporting Endorsement, or tail coverage) or they can add additional locations, exclude certain things from coverage, or otherwise change the terms of the policy.
  • Event – An incident that may or may not become a claim. A medical malpractice claims-made policy will sometimes allow for events, sometimes referred to as incidents, to be reported, which may be beneficial as a solution can be developed before the event becomes an actual claim.
  • Excess insurance – A secondary insurance policy that covers the policyholder for damages in excess of a stated amount, above that of the insured’s primary policy.
  • Exclusion – A provision in an insurance policy which identifies circumstances that are not covered by the policy. For example, sexual misconduct with a patient is generally excluded from coverage under a medical malpractice insurance policy.
  • Exemplary damages – Also called punitive damages, exemplary damages are awarded to punish a defendant for malicious or wanton conduct. Exemplary damages may or may not be covered by a medical malpractice insurance policy, depending on state laws.
  • Experience rating – Process of determining the degree of risk of a given insured, based on that person’s or group’s loss experience as compared with the actual loss experience of risks in that industry. Experience rating is generally not used in determining medical malpractice insurance premiums, as the claims experience of individual physicians is too variable over short time periods, making it challenging to produce a stable estimate of an individual’s risk. Instead, physician premiums depend primarily on specialty and geographic location. Experience rating may be used more often with hospital insurance, which have a more stable claims experience than individual physicians do.
  • Extended reporting endorsement/tail coverage – Coverage that is purchased after a claims-made or claims-paid policy is terminated. See more here.
  • Guaranty Association/Fund – A fund which, by law, must be maintained by each state’s insurance commissioner. This fund provides protection to policyholders in the event that their insurance company cannot meet its financial obligations.
  • Incident – An occurrence that may lead to a claim being filed by a plaintiff.
  • Incurred but not reported losses (IBNR) – Estimated liability for events that have occurred but have not yet been reported to an insurance company.
  • Incurred losses – Amount of paid claims and loss reserves in a given time period. Incurred but not reported losses are not generally included.
  • Indemnity – Restoration to a victim of a loss, up to the amount of the loss.
  • Indemnity reserves – Claims reserves that are set aside to pay the portion of claims costs expected to be paid directly to claimants.
  • Informed consent – The duty of a physician to fully explain a medical treatment or procedure to a patient prior to performing it. After the explanation is provided, the physician should obtain the patient’s consent for the treatment. If this is not done, there will be a presumption of negligence on the physician’s part if any injury results from the treatment.
  • Independent agents – Agents that contract with various insurance companies to sell and service their products. Independent agents may represent one or several insurance companies. Those who represent many insurance companies will be able to shop coverage to the different carriers to make sure the insured receives the best policy.
  • Limits of Liability – Maximum amount an insurance company will pay on a claim. Limits are indicated in the policy terms and are often expressed as per occurrence, or per claim, and aggregate based, meaning all losses for a single policy or policy period.
  • Locum Tenens – Locum tenens physicians are doctors who temporarily work in the place of the regular physician when that physician is absent or away due to vacation, illness or for other reasons. Locum tenens physicians often work through a staffing agency, and, in many cases, the staffing agency will provide the locum tenens physician with medical malpractice insurance. In some states, it may be possible for the absent physician to receive an endorsement to extend coverage to an approved locum tenens physician, so that the locum tenens physician is covered under the absent physician’s medical malpractice policy for the duration of his or her time filling in at the practice. Availability of such an endorsement varies by state and insurance provider.
  • Loss reserves – Amount set aside for indemnity payments and loss adjustment expenses for open claims.
  • Mature premium – Premium amount a claims-made policy holder will pay once their policy has matured, usually five to seven years after the policy is acquired. Claims-made policies have lower premiums in the first year, after which the premium will increase each year until it is considered mature.
  • National Practitioner Data Bank – Electronic database created by Congress, which contains information on medical malpractice payments and certain types of adverse actions related to healthcare practitioners and providers. Information is confidential and not available to the public, but certain types of organizations are allowed to access reports and use them in making licensing, credentialing, privileging and employment decisions.
  • Net Earned Premium – Net written premium plus assumed premium, minus unearned premium.
  • Net Written Premium – Amount maintained by an insurance company after it has paid for reinsurance.
  • Non-admitted carrier – A carrier that is not licensed to sell insurance in a given state, but is allowed to do so anyway because they fill a special need that is not being met by the admitted carriers. Also called surplus carriers, non-admitted carriers are not covered by a state’s guaranty fund, so policyholders will not be protected if their insurance company goes bankrupt. The insurance purchaser or their broker must provide a statement that there was a good faith attempt to obtain coverage through an admitted carrier before buying a policy through a non-admitted carrier. Non-admitted carriers are governed by the Surplus Lines Association in each state, and subject to special taxes and fees. Non-admitted carriers are sometimes able to offer lower rates than admitted carriers.
  • Non-assessable policy – An insurance policy provided by an insurer that does not have the right to assess policyholders for additional amounts to make up shortfalls in operating costs.
  • Noneconomic damages – An award to compensate an injured person for things that are not based on actual monetary loss, such as pain and suffering and emotional distress.
  • Non-renewal – Cancellation of an insurance policy at the expiration date, initiated by either the policyholder or the insurance company.
  • Occurrence policy – A policy that cover the insured for any incident that happened while the policy was in effect, no matter when the claim is reported.
  • Paid losses – Amount paid in losses by an insurance company during a specific financial reporting period.
  • Patient compensation fund – A fund maintained by a state that provides excess insurance coverage to healthcare providers. Physicians and other healthcare workers and entities in states with patient compensation funds have their per claim exposure capped at a threshold specified by the state. The patient compensation fund pays for any excess amount for claims that are greater than the cap. Patient compensation funds are paid for by a surcharge on healthcare providers, usually a percentage of the provider’s annual medical malpractice insurance premium.
  • Per claim limit – The maximum amount an insurer will pay on one claim under the terms of the policy.
  • Policy term – The length of time (usually one year) for which a policy is written.
  • Premium – Amount of money paid to an insurance company to receive coverage.
  • Premium credits – A credit included in a premium computation that reflects a reduction in hazard, meaning that the insured is considered a better risk. Physicians can frequently receive premium credits for things like completing specific CME coursework or membership in certain professional associations.
  • Premium discounts – Discounts applied to a premium for having a favorable claim history. Premium discounts can also be given to insureds who reduce their level of risk through things like completing risk management coursework.
  • Prior acts – Coverage that dates to before the official start date of a new claims-made policy. For example, if a physician cancels a claims-made policy, he or she would no longer have any coverage for any incidents that occurred during the term that claims-made policy was in effect. Acquiring prior acts coverage from a new insurer solves this problem by providing coverage back to the date when a claims-made policy was first acquired, referred to as the retroactive date.
  • Profit or Loss – A combination of underwriting results with investment income, expenses and taxes is used to calculate profit or loss. Actual profit occurs when underwriting profit plus investment income exceeds losses, expenses and taxes. An insurance company can also profit if their investment income offsets underwriting losses, expenses and taxes. If investment income is not sufficient to offset underwriting loss, expenses and taxes, then the company will have an actual loss, which must be offset by using the company’s surplus. If a company offers assessable policies, they can also impose payments on policyholders to amend the loss, as is possible with joint underwriting associations, trusts and some types of mutual insurance companies.
  • Punitive damages – See Exemplary Damages.
  • Ratios – there are several types of ratios to look at when assessing the financial health of an insurance company:
    • The ratio of net written premiums to surplus – this ratio shows the insurance company’s ability to assume risk. The strongest insurance companies will have a ratio as close to 1:1 as possible, though a ratio of up to 3:1 is considered a sign of company strength.
    • Ratio of loss reserves to surplus – this indicates the company’s ability to cover unanticipated reserve deficiencies. Regulators recommend that this ratio be 4:1.
    • Loss ratio – the total amount of incurred losses as a percentage of earned premium.
    • Expense ratio – the total amount of operating expenses as a percentage of earned premium.
    • Combined ratio – A combined ratio of more than 100% indicates and unprofitable year for an insurance company and is a sign that some type of adjustment will be necessary to reduce the combined ratio and once again become profitable.
  • Reinsurance – An agreement in which one insurance company accepts all or part of the risk of another insurance company. Often, smaller insurance companies are only able to cover a small portion of their liability limit and must pay large premiums for reinsurance. Larger insurance companies can cover more of their liability limit, leading to smaller reinsurance premiums and indirectly reducing the cost of insurance for their own policyholders.
  • Retroactive date – the date back to which prior acts coverage is provided. For example, a new claims-made policy acquired on January 1, 2016 might have a retroactive date for prior acts coverage of January 1, 2010, if that was when the original claims-made policy was acquired.
  • Retrospective rating – A rating plan that adjusts the premium amount at the end of a policy year based on loss experiences so that it more accurately reflects the current loss experience of the insured. Retrospective ratings can cause premiums to go up or down.
  • Re-underwriting – When an insurance company reassesses policyholders and imposes appropriate surcharges, deductibles, or even non-renewal in cases where the policyholder’s claims history or other experiences shows that they are an undue liability risk.
  • Risk classification – Based on the number and amount of losses that can be expected from a physician’s specialty and procedures.
  • Risk management – Process of systematically identifying, evaluating and reducing the possibility of an unfavorable outcome from a prescribed medical treatment.
  • Standard risk – Person or entity that is eligible for insurance with no restrictions or surcharges, according to a company’s underwriting standards.
  • Substandard risk – Person or entity that is required to pay higher premiums and may be subject to special coverage restrictions because they have a higher level of risk than other similar persons or entities, according to the insurance company’s underwriting standards.
  • Surplus – Amount by which an insurance company’s assets exceed its liabilities. Surplus is a key indicator of the financial health and solvency of an insurance company.
  • Surplus contributed and surplus earned – For a mutual company or reciprocal exchange, surplus contributed is the amount of capital the policyholders must provide during the first years of the company’s operation. Surplus earned is the earnings of the company after losses, expenses and taxes. As the company expands and grows its financial strength, earned surplus can be added to contributed surplus, and the contributed surplus returned to the early policyholders who provided it in the first place.
  • Surplus lines – See also Non-admitted carriers. Surplus lines of insurance provide coverage that is not offered by admitted insurance carriers in a given state.
  • Trust – An alternative to a traditional insurance company, a trust provides coverage to members, who are usually required to provide a capital contribution in order to join. Depending on the state, trusts may not be regulated by state insurance departments or covered by the state’s guarantee funds in the event of insolvency. Trust members are retroactively assessable, if the trust is unable to pay its losses. If a physician joins a trust, he or she may be obligated to remain assessable, even if the physician later leaves the trust.
  • Underwriting – Process of deciding whether to accept a risk and determining the amount of insurance and the rate at which the company will underwrite said risk.
  • Underwriting results – Profit or loss of an insurance company, not including investment losses or income. Underwriting results are computed by subtracting the amounts paid out and reserved for losses and expenses from the earned premium. If there is a residual amount left over, this is an underwriting profit. However, if deductions exceed earned premium, it is an underwriting loss.
  • Unearned Premium – Portion of a premium that is paid in advance of a coverage period, usually paid to the insurer at least one quarter in advance of the actual coverage period. The payment begins to become earned on the first day of the coverage period.
  • Vicarious liability – Liability for someone else’s actions, as when one party is held partly responsible for the actions of a third party, even though the first party is not directly responsible for the injury.