Principles of medical professional liability insurance

Published on 07/02/2015 by admin

Filed under Anesthesiology

Last modified 22/04/2025

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Principles of medical professional liability insurance

Brian J. Thomas, JD

Medical professional liability insurance is provided by third-party liability insurance companies and is purchased by an insured to protect against potential tort liability, a civil wrong, to others. When civil wrong occurs, it creates liability against the wrongdoer (tortfeasor) in favor of the injured party. The civil wrong in a medical malpractice case typically involves an alleged breach of the standard of care by a physician or other health care provider in the form of a negligent act or omission that substantially leads to the patient’s injury or death. In the case of a physician, the physician-patient relationship gives rise to the “duty” owed by the physician to the patient. A patient can recover money from a physician if the patient can prove that the physician’s conduct both fell below the accepted standard of care and caused the patient’s injury or death. Most physicians purchase medical professional liability insurance to defend and pay claims resulting from medical negligence or malpractice lawsuits.

Scope of coverage—what is covered?

The purpose of medical professional liability insurance is to protect the insured physician’s personal assets. Medical professional liability insurance generally provides coverage for a physician’s legal liability for “injury” that results from professional services provided or that should have been provided by the physician. “Injury” might include bodily injury and intangible injury such as pain, mental suffering, and loss of consortium (conjugal fellowship of husband and wife including not only material services, but also such intangibles as society, guidance, companionship, and sexual relations). “Injury” might also include purely economic losses, such as lost past and future wages, past and future medical expenses, and funeral expenses, as long as the loss derives from an act or omission of a professional nature. The protection provided by medical professional liability insurance varies and is typically defined by a policy’s “scope of coverage” provision.

Exclusions—what is not covered?

Medical professional liability insurance policies generally contain exclusionary language expressly limiting coverage in specifically defined situations. Although the exclusionary language varies among different policies, most medical professional liability policies routinely exclude coverage for specific situations (Box 249-1).

Box 249-1 Typical Exclusions by Medical Professional Liability Insurance Policies

Any intentional, willful, wanton, fraudulent, or malicious acts or omissions

Liability arising from substance abuse

Liability arising from the alteration, falsification, or destruction of medical records with fraudulent intent

Liability assumed under a written or oral contract or agreement

Punitive or exemplary damages

Limits of liability—how much is covered?

A medical professional liability insurance policy limits the amount of damages the insurance company will pay under the policy. Most medical professional liability insurance policies contain two limits—a “per claim” limit and an aggregate limit. The per claim limit is the maximum amount of damages the insurance company will pay for each claim. The aggregate limit is the total amount of damages the insurance company will pay for all claims within in a specified period of time—typically 1 year. Physicians may purchase different limits of liability coverage, typically ranging from $200,000 to $1 million per claim and with an annual aggregate that is typically three times the per claim limit. The amount of professional liability coverage purchased depends on the individual physician’s needs. Additionally, some states and health care facilities may require physicians to carry a minimum amount of professional liability coverage.

In addition to the limits of liability, most medical professional liability insurance policies provide coverage for the costs of defending a covered claim. The costs of defending a medical negligence lawsuit typically include attorney fees, expert fees, deposition fees, textbooks, and trial exhibits. The costs of defending a medical negligence lawsuit are most typically provided in addition to the limits of liability; however, under some policies, the limits of liability are reduced by defense expenditures.

Occurrence versus claims-made coverage

Medical professional liability insurance was traditionally written on an occurrence form. Under an occurrence form, the injury that precipitates a claim for damages simply must occur during the policy period to trigger coverage. Owing to the fact that many claims are not recognized, reported, or filed until years after the alleged negligent professional act occurred, insurance companies experience difficulty calculating how much premium should be collected today to cover claims that might not be reported for years.

To address this problem, many medical professional liability insurance companies now use a claims-made form instead of the occurrence form. Under a claims-made medical professional liability insurance policy, coverage is not triggered by the event giving rise to the injury (the occurrence) but, instead, by when the claim is first made. The term claims made refers to the notification that an injured third party is seeking redress from the insured. Typically, coverage is triggered when a physician receives a demand for money from an injured patient or receives a notice or summons from the patient’s legal representative and gives notice to the insurance company. Frequently, the meaning of claims made includes allowing coverage to be triggered by a precautionary reporting of adverse outcomes or incident report to the insurance company within the policy period regardless of third-party involvement.

Another feature of claims-made policies is the extended reporting period, which guarantees the insured an extended period in which claims may be reported if the policy is canceled or not renewed. The extended reporting period—also known as tail coverage—applies only to claims made after the policy expires or is canceled and arising from events that occur after the date the policy was issued but before the expiration of the policy. These provisions vary substantially among insurance companies.

Consent-to-settle clauses

The relationship between a physician and his or her medical professional liability insurance company is also defined by the extent to which the physician can influence the settlement of claims. Some medical professional liability insurance policies contain consent-to-settle clauses that require the insurance company to obtain the insured physician’s permission before settling a claim. Because many physicians view an out-of-court settlement as an admission of guilt or feel strongly that their care and treatment were appropriate, a consent-to-settle clause might be an important policy provision for those physicians. Some insurance policies do not include consent-to-settle clauses and allow the insurance company the right to settle claims—even those without merit—without the insured physician’s consent.

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