While there are many different companies to choose from, there are only two types of policies, claims-made or occurrence. Until approximately 1976, the only type of malpractice policy available for physicians was the occurrence form. Today, few companies still write the occurrence policy, while most only write claims-made. While both policies will cover you for claims that occurred during the policy period, there are distinct differences in the two types.
An occurrence policy covers claims that occurred during the term of the policy, no matter when the claim is reported or a suit is filed. The policy, even though the policy term has ended, always remains available for any claim that occurred during the policy term. If a 1/1/2005 to 1/1/2006 policy had $1,000,000/$3,000,000 limits (maximum per incident/maximum annual aggregate) and an incident occurred 6/15/2005 but the claim is reported today (2010), the 2005-2006 policy would respond to that claim with $1,000,000 coverage. Upon cancellation of the policy, the policy will remain available for claims and no additional fees are required. An occurrence policy premium is normally more expensive than claims-made. It's a good practice to keep your occurrence policies forever.
A claims-made policy covers claims that occurred during the term of the policy, BUT the claim must be reported while a policy is in force. Each claims-made policy has a retroactive date. This is normally the date of your first claims-made policy and remains constant even though your policy period, policy limits and even your insurance carrier can change. Any claim occurring after the retroactive date but before the cancellation of the policy would be covered by the limits that are in effect at the time the claim is reported (or made, hence the name). Using the same example from above, your retroactive date is 1/1/2005 (the date you started on the claims-made policy) with $1,000,000/$3,000,000 limits and the policy has remained active every year. The current policy period is 1/1/2010 to 1/1/2011. An incident that occurred 6/15/2005 and is reported today; would be covered under the 1/1/2010-2011 policy. Upon cancellation of the policy, coverage ceases and additional fees may be required to purchase an extended reporting endorsement, or tail coverage. The tail policy extends the period of time a claim may be reported that occurred during the policy term, from the retroactive date to the date of cancellation. Most companies offer free tail coverage for death, disability or retirement. A retirement tail has a requirement of age and length of time insured by the company, i.e. age 50 and being insured with them for one year. For any other reason, the charge for tail coverage varies and is approximately 200% of the mature premium. Tail coverage essentially turns the claims-made policy into an occurrence policy. The premium for a claims-made policy starts low and increases over the course of usually 5 years and varies by company. At that point in time the policy is considered "mature" and the premium will remain level, barring any rate increases or decreases that your company might take. The mature claims-made premium is usually a little less than the occurrence premium.
*The information provided is for comparison purposes only and does not constitute a recommendation of any employee of Hayes, Utley & Hedgspeth. Hayes, Utley & Hedgspeth does not guarantee the accuracy or completeness of any information contained herein and is not responsible for any errors or omissions or for the results obtained from the use of such information.