The Medical Liability Insurance Shopping Guide
Tips for shopping for medical liability insurance coverage.
What Is Medical Liability Insurance?
Medical liability insurance - commonly called medical malpractice insurance, covers a healthcare professional for errors arising from his or her practice.
These policies pay defense costs and generally cover claims for medical error or neglect, even if the claims are false or groundless. However, intentional and criminal acts are not covered, although some policies may pay defense costs until the nature of the underlying act is determined.
What Kinds of Insurers Offer Medical Liability Insurance?
The Texas Department of Insurance (TDI) recognizes four kinds of insurers that may offer medical liability insurance to healthcare providers in Texas. They are listed below.
Beware of insurance companies that do not fall into one of these categories. They are "unauthorized insurers" that have no legal standing in Texas and are often located overseas. Texas has little ability to enforce consumer protection laws where insurers are offshore.
To check on whether a carrier has legal standing in Texas, call our Consumer Protection 800 line at 800.252.3439, or visit the Company Profiles website at Insurer Search.
1. Licensed and/or Legislatively Authorized Insurers
Licensed Insurance Companies - TDI regulates the policy forms and rates of licensed medical liability insurers. Medical liability policies offered by licensed insurers must contain the following legislatively mandated provisions:
- Coverage may not be cancelled by the insurer after 90 days from the effective date of the policy;
- Minimum 90 days notice of nonrenewal or premium increase, including written reasons for such action; and,
- No surcharge for claims may be assessed unless the claims have been paid.
In addition, policies sold by licensed insurers may not contain restrictive provisions that are not in accordance with public policy and claims-made policies must include "tail" or run-off coverage.
Texans obtaining malpractice insurance from licensed insurers are protected by the Texas Property and Casualty Insurance Guaranty Association, for up to $300,000 per claim, if the carrier becomes insolvent. Check with a purchasing group insurer for its Guaranty Fund status. See the discussion on purchasing groups below. View licensed medical liability insurers at Professional Liability Admitted Carriers in Texas
These legislatively created entities also offer medical malpractice insurance:
Texas Medical Liability Insurance Underwriting Association (Texas JUA) - Established by the Legislature in 1975 to insure physicians and other eligible health care providers who cannot obtain insurance in the voluntary market.
TDI regulates the policy forms and rates of the JUA. The JUA does not participate in the guaranty association, but its member insurance companies and policyholders may be assessed to maintain solvency. Information on the JUA is on the JUA Resources area on the TDI website.
Texas Medical Liability Trust (TMLT) - Established under provisions of a 1977 statute that authorizes a statewide association of physicians or of dentists to create a trust to self-insure its members. The Texas Medical Association formed TMLT in 1978 for this purpose. By statute, only members of the founding association may obtain insurance from the TMLT.
TMLT files its rates and policy forms with TDI for information purposes only. TMLT submits an audited annual financial statement to the Texas Department of Insurance for review. However, the Trust does not participate in the guaranty association. Visit the TMLT web site at http://www.tmlt.org.
Medical Professional Liability Funds for State Higher Education Systems - Chapter 59 of the Education Code permits the establishment of separate self-funded plans to cover the professional liability of medical staff or students at certain institutions: University of Texas System, Texas A & M University System, Texas Tech University Health Sciences Center, and University of North Texas Health Science Center at Fort Worth. These funds are not subject to the Insurance Code and are not regulated by the Texas Department of Insurance. They do not participate in the guaranty association. Medical staff should contact their individual university for information.
2. Medical Professional Liability Funds for State Higher Education Systems
Chapter 59 of the Education Code permits the establishment of separate self-funded plans to cover the professional liability of medical staff or students at certain institutions: University of Texas System, Texas A & M University System, Texas Tech University Health Sciences Center, and University of North Texas Health Science Center at Fort Worth. These funds are not subject to the Insurance Code and are not regulated by the Texas Department of Insurance. They do not participate in the guaranty association. Medical staff should contact their individual university for information.
3. Surplus Lines Insurers
Insurance not available through licensed insurers may be placed with eligible surplus lines insurers. These insurers must be licensed in their home country or state to sell the kind of insurance they sell in Texas. They must also be on TDI's "eligible list" to conduct insurance business in Texas. Surplus lines insurance is purchased from agents licensed by TDI to sell this type of insurance. Before selling a surplus lines policy, however, the agent must make a diligent effort to find a licensed insurer to issue the policy.
What You Should Know About Surplus Lines Insurers/Policies
- It is common for surplus lines insurers to retain a significant portion of the premium in the event the insured cancels the policy midterm.
- Texas laws regarding notice of cancellation, nonrenewal or premium increases do not apply to these insurers.
- Defense costs could be included within the limit of liability and tail or nose coverage may not be available.
- In some cases, a surplus lines insurer can cancel before a policy's renewal date.
- Surplus lines rates and policy forms are not regulated and the policy may be more restrictive than those that are subject to TDI review.
- TDI does not audit the finances of surplus lines insurers.
- In the event a surplus lines insurer becomes insolvent, there is no guaranty association protection for insureds.
The Surplus Lines Stamping Office of Texas has additional information at its web site http://www.slsot.org/.
4. Risk Purchasing and Risk Retention Groups
Risk purchasing groups are formed under the provisions of the federal Liability Risk Retention Act (LRRA) of 1986. A purchasing group consists of individuals or firms of like characteristics who share similar insurance needs. The eligibility criteria for members of a purchasing group are set by the LRRA. Once formed and registered with the State of Texas, the group may use its purchasing power to obtain malpractice insurance and benefits at prices lower than individuals or businesses could negotiate separately.
If a purchasing group buys insurance from a licensed insurer, it may be eligible for guaranty association protection if the insurer has capital and surplus of $25 million or more at policy issue. If the purchasing group is not eligible for guaranty association protection, then it must disclose this to its members.
Policies sold to purchasing groups by licensed insurers are not filed with TDI for approval. However, the policies must contain the same legislatively mandated provisions included in the policies that the insurer must submit to TDI for approval. Licensed insurers in this category also are subject to TDI rate standards.
Surplus lines insurers underwriting purchasing groups are not regulated as to rates or forms and are not covered by a guaranty association.
Risk Retention Groups also are formed under the provisions of the federal Liability Risk Retention Act (LRRA) for the purpose of providing insurance. To be registered in Texas, a risk retention group must be licensed as an insurance company in its home state. As the name implies, these groups do not buy commercial insurance policies, but "retain" the risk within the group. In effect, the members insure each other against liability claims and lawsuits. However, because a risk retention group is an insurer, it may purchase reinsurance. This is a form of insurance that companies buy to cede part of their risk or spread losses over several years.
The rates and policy forms of risk retention groups are not regulated, and risk retention groups are not covered by a guaranty association.
Claims-Made Versus Occurrence Policies
An "occurrence" policy covers claims arising from events occurring while the policy is in force, regardless of when the claim is first made.
A "claims-made" policy covers claims reported during the policy term, provided the event occurred after the effective date of the first policy issued. An earlier "retroactive" date may be specified in the policy to cover acts occurring prior to the original effective date.
Under a "claims-made" policy, a claim is not covered if it is made in a policy year following the occurrence unless the claims-made coverage continues in force. If it does not, run-off coverage (tail) must be purchased to cover residual claims reported later. Claims-made policies are cheaper than occurrence policies for the first several years of coverage. This is because the potential for claims builds slowly as policy years accumulate.
The differences between these policy forms are best illustrated by the following examples:
A physician purchased an occurrence policy effective from June 1, 2000, to May 31, 2001. In August 2000, the doctor performed surgery on a patient. In 2003, the patient files a claim alleging negligence related to the surgery. Under an "occurrence" form, the policy bought in 2000 covers that claim.
If the physician bought a "claims-made" policy in 2000 and did not purchase "tail" coverage when the policy expired in 2001, there would be no coverage because the claim was made after policy expiration. However, if the doctor bought an indefinite tail in 2001, then the tail coverage policy would cover the claim.
Instead of buying a tail, a physician may purchase "nose" (prior acts) coverage. This is done by way of a retroactive date on a new or replacement policy. A new claims-made policy with a retroactive date of June 1, 2000, would cover this claim because the retroactive date is prior to the surgery date. Without tail or nose coverage, this claim would not be covered. Retroactive or nose coverage is useful only if a provider purchases new, continuous coverage each time he or she changes insurance companies.
How to Change Claims-Made Medical Liability Insurance Carriers
If you change insurers, be sure to take measures to prevent coverage gaps. Either purchase run-off ("tail") coverage from the old carrier or buy prior acts ("nose") coverage from the new one. Prior acts or retroactive coverage is accomplished by setting the retroactive date back to the original effective date of your first policy. It's also called retroactive coverage.
Tips in Renewing Coverage
Start the renewal process early. Six months in advance is not too soon to assemble information. Remember, providers shopping for lower rates could mean slower response times as underwriters handle more coverage requests.
See if you can get a renewal date other than January 1 or July 1. Medical, nursing and other health care schools crowd these dates with graduates. Insurers are flooded with renewals on these dates.
If you use an agent, respond quickly to requests for information. Be sure to document all communication with your agent. Especially note key items such as policy limits, deductibles, requested effective date, prior acts coverage, etc.
If you are a large or medium-sized insured, get your loss runs up-to-date. Ask to get old inactive claims closed in a no-payment status. Insureds of any size should be prepared to address claims history.
Update and document all patient safety and loss control measures including employee training accomplished. Be prepared to show why your practice is, and will continue to be, a good risk.
Consider assuming more risk in the form of higher deductibles or lower policy limits. However, check first with your hospitals and HMO's for their credentialing requirements.
Be proactive. Provide your agent or insurance markets with loss runs, coverage choices, and risk management efforts at least four months in advance. Remember, Texas statutes require an insurer to give 90 days notice of nonrenewal, so underwriters need this information well in advance
Prepare your office or facility budget to allow for premium increases.
How Do I Handle My Policy When Nearing Retirement or Leaving Practice
Be certain that you have tail coverage with a sound insurer. Plan in advance, because the coverage is expensive and may cost as much as one and a half to three times an annual premium.
Most insurers have a plan that allows an insured to receive free run-off coverage in exchange for continuous coverage for a stated period (usually five or more years) when reaching retirement age and ceasing practice permanently.
There may also be arrangements that can be made if a health care provider is called to active duty in the armed forces. Professional armed forces personnel are now protected by the Servicemembers Civil Relief Act of 2003. It addresses professionals going on active duty and their insurance needs.
Check with your insurer to see if these options are available.
The Texas Department of Insurance
If you have a complaint, call your agent or insurer. Insurers list a toll free phone number in their policies. You may call the TDI Consumer Information Line at 800.252.3439 and request a complaint form. Fax it back to 512.475.1771. Alternatively, visit the TDI web site at Helping You With Your Insurance Complaint and follow the directions to submit a complaint on line. Use the Physician / Provider / Clinic Complaint Form, and be sure to indicate you have a professional liability complaint.
For more information contact:
Last updated: 01/24/2012