An Introduction to Sherman’s Law of Malpractice Insurance
Like all professions, from time to time, physicians experience changes in employment. If you are a doctor who’s considering joining a new practice, starting your own practice or retiring, then you need to be sure you are protected from a lawsuit resulting from your previous work.
Depending on your circumstances, you may need tail coverage. In this post, I discuss tail coverage and take you through the process of determining whether you need it [1] with the help of Sherman’s Law of Malpractice Insurance- If you cancel a claims-made policy, you should get tail coverage.
[1] Since I do not explore every situation here, you may consider consulting with a qualified professional should you have any questions.
Before we look at Sherman’s Law more carefully, first you need to understand the different type of malpractice insurance policies, so find out what type of a malpractice coverage you have.
If you have an individual occurrence policy, you can stop reading. You are protected from any claims resulting from work you performed while that policy was in effect.
If you have a claims-made policy, you need to understand how this type of policy works.
A claims-made policy covers you when the claim (e.g. lawsuit) is served. Claims-made policies contain a retroactive date, which marks the beginning of the coverage. Let’s look at a quick example:
- Dr. A has an active malpractice policy in 2014, with a retroactive date of January 1, 2014, and performs a procedure that year which results in a bad outcome;
- In 2016, Dr. A is served with a lawsuit resulting from the 2014 procedure in question;
- Dr. A has 2016 claims-made policy which will provide coverage since the claim was submitted in 2016,
For the physician whose claims-made policy is cancelled, there is a potential issue as illustrated below:
- Dr. A has an active malpractice policy in 2014 and performs a procedure that year which results in a bad outcome;
- In 2015, Dr. A cancels the policy (due to retiring or changing jobs) and does not buy tail coverage;
- In 2016, Dr. A is served with a lawsuit resulting from the procedure in 2014.
In this case, without a 2016 claims-made policy, the doctor would not be covered.
[psa_cta id=”13813″]We just Mentioned “Tail Coverage.” What is It?
Tail coverage protects you for a certain number of years, sometimes indefinitely, from any claim resulting from work performed under your former policy. It is usually in the form of an endorsement, similar to a rider, which you add to your policy normally at the time of cancellation.
Now, lets’ review and dissect “Sherman’s Law of Malpractice Insurance.”
Sherman’s Law of Malpractice Insurance states that: If you cancel a claims-made policy, you should get tail coverage. In the second half of the post, I examine the underlined words more closely to help you fully understand Sherman’s Law.
If you Cancel a Claims-Made Policy, You Should get Tail Coverage
“If you cancel”
There is a difference between cancelling and just transferring your policy to a new insurer. If you are cancelling, you can skip to the next section and keep reading.
Otherwise, in many cases, you can transfer your individual claims-made policy to a new job by simply changing the location and address. In this situation, your policy will continue to cover you, should a claim develop from your previous work.
If you are transferring your coverage to another claims-made insurance company, make sure they accept the original policy’s retroactive date, in order to cover your past exposures.
If you Cancel a Claims-Made Policy, You Should get Tail Coverage
“Tail coverage”
Remember, tail coverage protects you from claims resulting from work performed under your former policy.
Putting this in practical terms, let’s review our earlier example again by factoring in the following:
- Dr. A cancels their policy on January 1, 2015 and purchases tail coverage.
Since the claim was filed in 2016, and the policy was cancelled in 2015, Dr. A does not have a claims-made policy to cover the suit. However, the tail coverage purchased in 2015 will cover the claim.
You can either purchase a tail policy from your current insurance company or sometimes from a different insurer. Consult your broker or insurance carrier for further details.
If you Cancel a Claims-Made Policy, you Should get a Tail Coverage
“Should”
Notice, I did not say “must” because normally, you are not required by law to purchase tail coverage.
If you are considering cancelling your claims-made policy and taking the chance of never being sued, you should be aware of the following:
- It may be difficult to get credentialed or obtain insurance in the future if you have a gap in your coverage.
- A potential lawsuit could be financially devastating without any insurance.
Bottom line: Forgoing tail coverage is not worth the risk.
If you cancel a claims-made policy, you should get tail coverage.
“Get”
I said “get” not “buy”. Why? You may not have to pay for tail coverage in certain circumstances.
There are several scenarios, depending on your insurance company, in which you can get tail coverage for free including retirement, becoming disabled or passing away, or sometimes relocating to another service area.
Also, in certain situations you can leave a group and not have to buy a tail policy. For example, if you are sharing a policy with others, it may continue to protect you after you leave. Stay tuned for more on this in my next post.
Until then, remember Sherman’s law of malpractice insurance:
If you cancel a claims-made policy, you should get tail coverage.
Contact Us
If you have any questions regarding tail insurance, feel free to contact me at 443 798 7486 or at ssherman@psafinancial.com
[1] Since I do not explore every situation here, you may consider consulting with a qualified professional should you have any questions.