FAQ

Frequently Asked Questions

The following advice, from Backus & Associates, is based upon more than 50 years of combined experience working with physicians.

• What should my policy limits be? How much insurance is enough?

 

• Should the PC be insured by a separate policy?

 

• Should Physician Assistants have their own medical-liability insurance protection?

 

• Should I purchase medical-liability insurance through a hospital program?

 

• I can purchase better medical-liability insurance through another company: superior protection and value. Should I do it right now or wait until my renewal date?

 

• What type of policy do I need: claims-made, prefunded tail, or occurrence?

 

• If I’ve been purchasing claims-made policies and want to switch to another company, do I first have to purchase a ‘Tail’ policy?

 

What should my policy limits be? How much insurance is enough?

Any state and/or hospital require physicians to carry a specified amount of medical-liability insurance.  In Michigan, many physicians are insured at relatively low policy limits when compared to physicians nationally.  Traditionally, Michigan’s medical-liability insurance rates have been among the nation’s highest, and the courts—particularly in southeast Michigan—among the nation’s most generous.  For affordability reasons, many physicians and hospitals have chosen relatively low policy limits as acceptable, i.e., $100,000 or $200,000 per incident.

Rather than focusing upon “how much is enough,” let’s consider the practical and business requirements.  Most medical practices accept referrals from, or make referrals to, other physicians.  If a medical-negligence lawsuit is filed, it is very likely that all physicians involved in the patient’s care will be named.  For practical defense reasons, it is best if all physicians involved in a patient’s care are insured the same.  If one physician is carrying considerably more insurance protection than the others, that physician automatically becomes the “most recoverable” and will draw undesirable attention from the plaintiff’s attorney.  There are very few advantages associated with being the “deep pocket” in any civil action.

On the other hand, a physician may be jeopardizing referral relationships by being underinsured.  If the physicians with whom you accept or place referrals become the “deep pocket insureds” because you are underinsured, don’t expect them to accept or send future patient referrals.

Our Position: It is best to be insured at, or near the same level as the majority of physicians practicing in your community.  At Backus & Associates, we work with physicians to not only ensure adequate coverage, but by working with multiple insurance companies we are able to provide competitive rates.
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Should the PC be insured by a separate policy?

A professional corporation is recognized as a separate legal entity and could be named along with physicians and other health professionals in a medical negligence lawsuit. It is important to remember that medical-liability insurance provides protection against allegations of negligence in the rendering of professional services.
First and foremost, the PC’s medical-liability insurance policy is not excess insurance. If your medical-liability insurer, or its agents, have indicated that your PC limits are excess coverage, it is important to ask them to identify the contract language to support that assertion, and/or ask them to put it in writing. Typically, a separate policy for the PC will cost an additional five to ten percent of the affiliated physicians’ total premiums. By purchasing separate limits on the PC you are not “doubling” your insurance protection.
Many medical-liability insurance companies allow physicians to add their PC as an “additional insured” at no cost. This ensures that the PC will be defended in any legal action that also includes one or more of the insured physicians.
Our Position: In states that recognize “joint” and “several” liability, the PC’s policy limits are available to satisfy a jury verdict in excess of individual policy limits. The policy limits on your PC are not automatically in excess of your individual policy limits.
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Should Physician Assistants have their own medical-liability insurance protection?

The physician’s medical-liability insurance protects the physician against allegations of negligence for the acts or omissions of his/her employees. It does not provide protection for the employee. If the Physician Assistant (PA) will be acting independent of direct physician supervision (i.e., writing prescriptions), he/she could be named in a medical- negligence action without the physician-employer also being named. In this scenario, the physician’s policy would not be involved. A PA that has the authority to work independent of the employing physician’s direct supervision does not have that same defense.
Supervised employees—those whose actions and services require the physicians direct approval by authorized signature—have the best defense available: “I was just doing what my employer told me to do.”
Our Position: If a PA has the authority to examine patients and write prescriptions without the authorizing signature of the physician-employer, a separate policy on the PA is recommended. At Backus & Associates, our business is medical-liability insurance for physicians, as well as PA’s.
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Should I purchase medical-liability insurance through a hospital program?

Some hospitals offer medical-liability insurance through their own program, or through an “endorsed” insurance company. Often, the premiums offered to physicians with staff privileges can be very attractive.
However, the contracts offered through hospital-endorsed programs must be closely examined. In order to qualify for the program’s discounted premiums, the physician-insured may be required to share defense counsel with the hospital anytime both entities are named in the same legal action. Furthermore, the discounted hospital program may require the physician-insured to forfeit the policy’s consent prior to settlement clause. This means, hospital program requirements can effectively result in the physician paying for medical-liability protection that he/she does not control.
Let’s look at a requirement to share defense counsel with the sponsoring hospital:
How many lawsuits does the hospital have pending at any given time? How many lawsuits will the physician-insured have pending at any given time? The “shared” defense counsel may be meeting with hospital administration every week to review the status of multiple cases. The hospital may actually be the “shared” defense counsel’s largest single client. Ultimately, whose best interest is the “shared” defense counsel pursuing?
Let’s look at the requirement to forfeit the consent prior to settlement clause:
The “shared” defense counsel may have the opportunity to use your policy’s insurance limits to mitigate the hospital’s exposure without your consent. The only way you can be 100 percent sure this doesn’t happen to you is to purchase a medical-liability insurance contract that requires your consent prior to any settlement.
Our Position: More often than not you get what you pay for. Why would your premium be discounted just because you are buying the insurance policy through a hospital? Read the contract carefully. Make sure you have your own defense counsel and that your consent is required prior to any settlement.
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I can purchase better medical-liability insurance through another company: superior protection and value. Should I do it right now or wait until my renewal date?

Your ability to purchase advantageous medical-liability protection is a perishable condition. Your insurability is not unalterable: frivolous claims, notices of intent, and assorted investigations are launched every day. Furthermore, medical-liability insurance premiums are at least indirectly connected to investment performance. Today’s advantageous rates could evaporate by the time you renew.
Upon cancellation—which must be done in writing—the physician-insured will receive a refund of unearned premium. Michigan, for example, is a “pro-rata” state and the canceling insured receives a 100 percent refund of the unearned premium calculated on a pro-rata basis. In states that allow a “short-rate” refund, the insurance company can retain an administrative surcharge from the unearned premium.
Our Position: The conditions, which result in today’s advantageous opportunity may not exist tomorrow. A physician’s insurability and an insurance company’s earnings are perishable. If a superior product and value are available to you today, it makes good sense to act upon the opportunity.
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What type of policy do I need: claims-made, prefunded tail, or occurrence?

In general, claims-made policies represent the greatest savings. The premium is low during the first four years of protection because the probability of paying a loss is low. Upon the fifth year of protection, a claims-made policy will reach and stay at its “mature” price assuming no overall rate increases occur. If your patients are primarily adolescents and adults, and you plan to practice until at least age 55, and that date is at least five years away, claims-made protection is an excellent option. NOTE: Upon retirement all preceding exposure years—the years you practiced—will be covered by a single set of policy limits. Adolescent and adult patients typically have only two years after the date of services rendered in which to file a medical-negligence claim. Therefore, the single set of policy limits should be sufficient for the great majority of physicians.
Occurrence policies provide ongoing protection for each policy term. If you were to purchase only one occurrence policy, for policy year 2000 – 2001 as an example, that policy year would be covered by that occurrence policy forever. Occurrence is the most expensive and comprehensive form of medical-liability protection. A physician that has purchased occurrence policies will, upon retirement, be protected by a separate set of limits for each policy year. This is the most significant difference (along with price) between claims-made and occurrence protection. A separate set of policy limits covering each policy year should be strongly considered by physicians treating newborns, infants and toddlers whose liability exposure can be ten years or more. A single set of policy limits, as is the case with claims-made protection, may not be sufficient to cover ten years of exposure after retirement.
Prefunded Tail policies represent a compromise between claims-made and occurrence forms. Like many compromises there are benefits and sacrifices. Similar to occurrence policies, prefunded tail policies costs more than claims-made protection and provides ongoing coverage, i.e., no “Tail” policy will ever be required. Like claims-made protection, all preceding exposure years are covered by a single set of policy limits. Unlike claims-made protection, prefunded tail policies do not offer any “discount” years: prefunded tail premiums start at approximately the mature claims-made rate and stay at that rate. Since the relative exposure to “Tail” policy expense is so low—for most physicians—the sacrifices associated with prefunded tail protection may outweigh any real or perceived benefits.
Our Position: If a physician treats adolescents and adults, plans on practicing until age 55 or older, and their projected retirement date is at least five years away, claims-made protection represents the greatest value. If a physician treats newborns / infants / toddlers the increased liability exposure is best managed through occurrence protection. If a physician treats adolescents and adults, and is likely to retire prior to age 55, or may be moving from practice-to-practice, or state-to-state, a prefunded tail policy may be best.
At Backus & Associates, we work with physicians to ensure each individual is covered by the best policy, and protection, available.
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If I’ve been purchasing claims-made policies and want to switch to another company, do I first have to purchase a ‘Tail’ policy?

Not usually, bet every situation is different. A competitive commercial insurance company may provide qualified physicians “prior acts” protection. Let’s say a physician has been purchasing claims-made protection from Company X and has a retroactive date of January 1, 1989. If this physician wishes to switch from Company X to Company Y, and meets the new company’s underwriting criteria, Company Y’s new policy will have a retroactive date of January 1, 1989. This “prior acts” feature represents a genuine benefit of claims-made protection and it eliminates the need to document which insurance company is responsible for which period of time. By including prior acts protection the current policy covers all services rendered back to the retroactive date.
NOTE: For physicians currently insured by a proprietary program (typically underwritten by an offshore insurance entity), securing prior acts coverage from another carrier may be more difficult. If a physician is moving to a proprietary program, the insurance entity underwriting that program may not extend prior acts coverage. It is extremely important that any physician currently insured by a proprietary insurance program receive an annual copy of the insurance policy.
Not every proprietary program offers “Tail” or extended reporting period protection. Some proprietary programs do not require the physician’s consent prior to settlement, and some may require shared defense counsel with the sponsoring hospital or clinic. All of these compromises may have ramifications that should be thoroughly considered prior to joining or leaving a proprietary insurance program.
Our Position: For the vast majority of private practice physicians, claims-made protection through a quality commercial carrier represents the greatest insurance value.

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