Overview of Coverage Options
The most common and widely misunderstood coverage choice to make when purchasing malpractice insurance is choosing “shared limits” or “separate limits” of coverage. Malpractice insurance policies offer “shared limits” or “separate limits” of liability coverage for the Practice Entity (Entity or Organization), and licensed employees (NP’s and PA’s). It is critical to understand how these options will apply because this becomes an important part of your malpractice insurance coverage.
Practice Entity – “Shared Limits”
Most malpractice insurers provide physicians with automatic “shared limits” of coverage for their Practice Entity (Entity) at no additional premium cost. This means that when a physician and Entity are both named in a lawsuit, then both the physician and Entity will share the physician’s limits of coverage. Licensed employees (NP’s and PA’s) can also share the physician’s individual coverage limits for a nominal premium charge. The more a physician shares their policy limits of coverage, then the greater risk and less coverage they have for themselves.
Roughly 33% of all malpractice insurance claims are a result of ancillary staff errors, which are also known as “back office” type claims. Since the physician is solely responsible under “shared limits” of coverage, then even a moderate claim loss ($25k to $50k) can damage their ongoing insurability in several ways.
- The physician can lose their loss-free credits that will increase their premium cost
- The physician can potentially be surcharged 25% to 50% higher premium rates
- The physician’s policy can be canceled for a severe claim loss of $100k or more
If the policy is canceled, then the physician must look for alternative surplus-lines insurance coverage that will provide less coverage for greater premium costs. The physician’s insurability going forward is always determined by the severity of any loss they sustain.
Each claim loss must also be reported to the National Practitioner Data Bank (NPDB). If there are “separate limits” for the Entity or licensed employee(s), then the claim may be reported against the Entity or employee without affecting the physician’s individual limits of coverage.
Practice Entity – “Separate Limits”
Physicians can choose to purchase separate limits of malpractice insurance for their Entity or licensed employees (NP’s or PA’s). Separate coverage limits can also stack onto the physician’s individual coverage limits for about 30% additional insurance premium cost. The physician is responsible for all claims to the practice when no other “separate limits” of coverage exist.
Purchasing “separate limits” of coverage for the Entity and/or licensed employees offers greater protection to the physician’s and can double the amount of coverage if needed in a “worst-case” claim scenario. The physician can achieve a great amount of insurance coverage for a relatively low (roughly 30%) premium cost.
- Compare the cost of purchasing “separate limits” for the Entity with the cost of raising the physician’s individual limits of coverage (e.g., increasing liability limits from $250,000 to $500,000 versus having two separate $250,000 limits that will stack).
- Consider that “separate limits” of coverage can stack onto the physician’s limits to achieve higher liability limits of coverage for the physician.
Licensed Employees (NP’s or PA’s) – Shared vs Separate Limits
It is critical to determine the terms for insuring a licensed employee with the practice before a hiring decision is made. Will the employee share the physician’s coverage limits or carry “separate limits” of coverage?
- When “separate limits” of coverage are chosen, then a tail insurance policy must be considered when the licensed employee leaves the practice. With “shared limits” there is no need for the employee to consider purchasing tail insurance when they leave the practice.
The employment contract with the licensed employee should address whether the employee must purchase a tail insurance policy at their own expense when choosing to leave the practice.
“An ounce of prevention is worth a pound of cure.” Benjamin Franklin
Aviso Insurance is an independent agency that supports healthcare professionals and their medical organizations. We have access to nearly all insurance markets to better serve you.
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Dan Reale, Independent Agent/Owner – Office: (407) 808-6149
E-Mail: [email protected]