Introduction

The author of this series, Margaret A. Bogie is a licensed property and casualty insurance consultant. She has worked with mental health professionals for over 15 years in her capacity as Executive Administrator of the American Psychological Association Insurance Trust and as an insurance consultant for the American Professional Agency. Although this series was written originally for psychologists, it is applicable to any mental health professional shopping the insurance marketplace.

Ms. Bogie has a masters degree in Health Services Administration from the George Washington University. The views expressed in this article are her opinions. Ms. Bogie can be reached for questions and comments through E-mail at MABogie@aol.com.

Shopping the Market

Buying insurance is not America's favorite pastime. I agree that shopping malpractice insurance programs can be very boring, but real bargains are available for those who do some minimal comparison. This article is the first in a series of tips on how to shop for malpractice insurance. Its purpose is to make what seems to be a tedious task, easy and fun. Along the way, I'll list a few "pointers" to guide your search.

All malpractice programs are NOT the same. In fact, competitors try to differentiate themselves with various "bells and whistles". You should understand the key differences between programs and decide which differences are important to you. Getting this information is easy -- the carriers or their agents will supply it for you. In fact, a carrier or agent who declines to provide basic product information violates state insurance law.

First, look at the insurance carrier. Nearly all insurance carriers have a financial rating, called a Best's rating, after A.M. Best's Guide to Property and Casualty Insurance Companies. Most public libraries have a Best's Guide in their reference section. If you don't want to look it up, have the insurance carrier or agent give you a copy of the rating. Best's rates insurance companies for financial soundness as well as provides information on their history and market share. 

Pointer 1: Try to buy insurance from carriers with an A- rating or better. As a consumer, you are looking for a carrier with the financial stability. Steer away from carriers without Best ratings or with low Best ratings. 

An insurance carrier licensed to do business in your state is known as an "admitted" company. It means the carrier is subject to your state's insurance regulation. Your state insurance department may investigate and adjudicate any state residents' complaints against an "admitted" company. In many states, residents are covered by a state fund in the event of insurance carrier insolvency. A non-admitted" insurance company is not licensed to do business in your state, although it may be able to solicit business there if meets certain state standards. However, your state insurance department is not going to resolve any complaints from residents against the "non-admitted" company nor do you have any coverage under insolvency funds. 

Obviously there will be situations where using a "non-admitted" insurance company is a reasonable trade-off for giving up valuable consumer protection. Some reasons include if malpractice insurance becomes scarce, or if insurance premiums raise dramatically, or if coverage is markedly better. 

Pointer 2: Try to buy insurance from an "admitted" insurance company. You should have a good reason for selecting a "non-admitted" over an "admitted" insurance company; if you don't have that reason, chose the "admitted" company.

The malpractice insurance marketplace is rather small when compared to competition for auto or homeowner's insurance. As a consumer, you want an insurance carrier and/or an agent who has some experience and staying power with malpractice, and particularly, mental health malpractice coverage. The major competitors have established track records, but new entrants into the marketplace may have little or none. You don't want to have your insurance coverage be someone else's learning experience. However, if the trade-offs are right you may want to consider a new competitor. Then again, you may want to wait a few 
years until the new competitor gets a little experience in the marketplace.

Pointer 3: Try to buy from an insurance carrier or an agent with a track record in the marketplace.

 

 

The Guts of a Malpractice Insurance Policy

Knowing the difference between the "guts" of a malpractice policy and the "bells and whistles" is a critical comparison tool. The "bells and whistles" may influence your purchase decision, but never at expense of the "guts". While the "guts" of most malpractice policies should be the same, there is a surprising amount of variation. 

This exercise requires that you get a specimen policy from the insurance carrier/agent. The carrier/agent should provide a specimen policy upon your request; if they can't get you a specimen policy, I wouldn't consider buying their product. Don't be afraid of reading the specimen policy. Many carriers have gone to the "easy reader" style of plain language. You won't need a secret decoder ring to figure out what these insurance contracts mean. 

The "guts" of a malpractice policy appears in three sections: the Insuring Agreements, Limitations and the Exclusions sections. The Insuring Agreements giveth, the Limitations and the Exclusions taketh away -- it's that simple. What you are looking for is the broadest giveth with the smallest taketh away.

A psychologist may work in a wide variety of professional settings. You want coverage extending to whatever you do in your professional capacity. Look for language that covers "the practice of your occupation" or "amounts you are legally required to pay others." Each policy will contain a definitions section in the back; see how the words "psychologist," "insured" or "you" are defined. 

Pointer 1: Be on the look out for any insuring agreement or definitions which attempt to strictly define the practice of psychology. I have a strongly held opinion that it is the profession, not the insurance industry, that defines what is or is not psychology.

Usually, any elimination of coverage is detailed in the Exclusions section of the policy. First, you should know that a number of exclusions are standard because state insurance laws restrict the number and type of different risks that may be covered by property and casualty insurance policies. Therefore, claims involving cars, boats and planes are excluded. Bodily injuries to employees or any other claims are excluded. Claims arising from property damage to property you own or rent are excluded because homeowners, renters, or commercial liability policies would cover such claims. You buy other insurance coverage, such as automobile, workers' compensation and homeowners/renters coverage for this risk. You also won't be covered for a claim caused by criminal acts. There simply is no insurance coverage available for criminal conduct. 

You need to be concerned with exclusions which affect your professional practice. Look for any exclusions restricting the hours of practice, the type of services rendered, or the location of activities. You don't want to see them. 

Some policies will exclude claims involving sexual impropriety allegations. These claims will be defended, no funds are available for settlements or damages. While the vast majority of psychologists will have no problem with this exclusion on a personal level, it can become rather sticky if the allegation involves an employee or supervisee. You may want to settle such a claim and the availability of coverage for it may be an important issue. 

Pointer 2: Ideally, the exclusions should only pertain to claims that would be covered by another type of insurance or can't be covered by any insurance. If an exclusion applies to a specific risk, consider how it could impact on your practice.

Finally, check the section on Limitations of coverage. First, check if there is any limitation on defense costs. Most carriers provide defense costs, without limitation, as well as coverage for damages and settlements up to the policy limits. This is known as defense costs being "outside" the policy limits. What you don't want are defense costs "inside" the policy limits; that it, reducing the available liability limits for damages and settlements. 

Pointer 3: Try to get defense coverage "outside" the policy limits. 

Second, check if the policy has any sub-limits. Some of the major competitors provide a reduced amount of coverage for damages and settlements of sexual impropriety claims. This could be a real plus depending on your practice. In my opinion, some coverage is better than no coverage especially if the policies otherwise comparable. 

Pointer 4: A limitation is preferable to an exclusion, particularly when it concerns coverage of specific risk. 

 

 

Bells and Whistles

The "bells and whistles" of a malpractice insurance policy may influence your purchase decision. These "extra" features are abounding in the current market. What you need to determine is which "bells and whistles" have real value to you. This article will discuss some of the major "extras" to consider while you are shopping your insurance coverage.

Premise Liability - Some carriers offer premise liability up to the policy limits at no extra charge. This is "tripping and falling" coverage for your owned or rented premises. It's a nice bonus, but it's not a big bell or whistle for most psychologists. The reason is that you already have premise liability insurance in your homeowners, renters or commercial liability coverage for your office space. Homeowners, renters and commercial liability policies also cover property damage caused by such risks fire or theft. These insurance policies aren't sold without some level of liability coverage. Most psychologists will simply gain duplicate coverage or coverage in excess of their homeowners, renters or commercial liability policies.

Pointer 1: Premise liability is a plus, but generally not a critical difference when making a purchase decision.

Licensing Board Coverage - This is a relatively new policy feature and a worthwhile one. Malpractice insurance was originally designed to respond to law suits, not regulatory actions such as state licensing board investigations. The times have changed. Some carriers are including coverage for legal expenses in curred in the investigation or defense of licensing board complaints under a low sub-limit for no additional premium. At least one carrier will allow you to increase the basic sub-limit for an additional charge. Although the incidence of licensing board complaints against psychologists is low, this policy feature has considerable value. Its absence or presence in an insurance policy should be given weight in your purchase decision.

Pointer 2: Licensing board coverage is a major difference between insurance policies because it provides unique coverage for a previously uninsurable risk. 

Legal Bonds/Lost Income - Coverage for bonds and/or reimbursement of lost income when attending court and/or depositions is a fairly standard feature. The latter benefit usually is capped at a low sub-limit. Remember, mental health professionals are still a low risk for malpractice litigation even in today's litigious climate. Even if you are sued, your claim may never progress to the deposition or court phase. 

Pointer 3: The presence of coverage for legal bond/lost income is a plus, but should not be the critical basis for a purchase decision.

Premium Discounts and Premium Credits - Premium rates are among the biggest "bells and whistles" around. They may result in a significant reduction of your premium rate. 

A premium discount is a reduction given if you meet the carrier's specific risk profile. One carrier provides lower rates to women. Several other carriers provide discounts for part time practitioners. First year practitioners may get discounts. Non-clinicians may get discounts. The discounts vary by carrier. Ask what discounts are available for a psychologist in your situation. Remember, you don't have to do anything to get a premium discount, except meet the carrier's specific risk profile.

Premium credits require that you do something to receive a reduction in your premium. However, the credit is open to everyone, not just people meeting a specific risk profile. For mental health professionals, premium credits are linked to continuing education and/or risk management courses. Once you complete a certain number of hours or a specified course, then you get the credit. This is great for professionals practicing in states with mandatory CE requirements. Even if your state doesn't require CE, the savings on your premium may be greater than the cost of taking the CE credits.

Check how often you can use premium discounts/credits and any limitations placed upon them. Premium discounts should be offered annually, but premium credits may be a one-time credit or an annual credit. Some premium credits can only be applied to a maximum dollar figure or cannot be combined with other premium credits. 

Pointer 4: Look for premium discounts and credits which correspond with your personal circumstances to reduce your overall malpractice premium. 

Severability of Limits - Severability of limits means that all named insureds under a policy have separate liability limits, not shared liability limits. If you are a solo practitioner, severability of limits is irrelevant to you unless you are considering adding employees. However, if you are a solo practitioner organized as a professional corporation (PC) or as a professional association (PA), severability of limits means that both the PA/PC and you would have separate limits resulting in twice the insurance coverage for your premium dollar. If you are in a group practice, it's even a bigger bonus to have separate liability limits for each and every person named as an insured under the policy. 

Pointer 5: Severability of limits is an important feature for incorporated individual practices and group practices. 

 

 

A Few More Bells and Whistles

In my last article, I reviewed some to the more visible "bells and whistles" when shopping insurance. This article discusses some of the less visible "bells and whistles" which may affect your purchase decision. Depending on your individual situation, they may or may not be important to you. 

Consent to Settlement - Approximately 95% of all malpractice claims in which any damages are paid are settled out of court. Therefore, your contractual rights regarding the settlement of a claim are important to consider. A policy that prohibits settlement without the consent of the insured is rapidly becoming extinct. To my knowledge, no insurance carriers covering psychologists offer such coverage. 

What you are more likely to see is language that provides you limited authority in the settlement process. The policy allows the carrier to remove itself from a claim if the insured refuses to accept a settlement acceptable to the plaintiff and the insurance carrier. The policy provides that the carrier may cap its liability at the amount of the proposed settlement to the insured. The insured may litigate the claim as he/she deems appropriate. The capped amount is the maximum the insurance carrier would have to pay in the event of a subsequent settlement or damage award. This is the industry standard on consent to settlement. 

Remember, insurance carriers want insureds to consent to settlements whenever possible. If the insurance carrier withdraws from a claim and the defendant prevails, the insurance carrier could face a breach of contract suit from the defendant. In general, insurance carriers rarely will risk facing a breach of contract suit to force a settlement.

What you want to avoid is language that says the insurance carrier can settle a claim with or without your consent. I find that unacceptable because I believe you should have a say in how any claim made against you is handled. The insurance carrier shouldn't be the sole decision maker when settling a claim. 

Pointer 1: Look for consent to settlement language that requires you have some authority to consent to any settlement of a claim.

Scope of Coverage - Employees, Group Practices - During my career, I have noticed that many psychologists hold multiple jobs. They may work part time in a group practice and part time in a private practice. They may consult, teach, or evaluate. Ideally, your malpractice insurance coverage should cover you in all your professional settings. This matter was simple twenty years ago when the majority of psychologists practiced individually. Everyone had their own policy that covered them everywhere. Today, the trend is to form larger practices by working with employees and/or joining a formally organized group practice.

Most insurance carriers require that all professionals in a group practice and all employees, either of an individual or a group practice, are insured under their malpractice policy. Where the carriers differ is whether the malpractice coverage extends beyond the employment and/or group setting. Some carriers will not cover any work outside the employment/group setting. You'll have to buy a second insurance policy for the outside work. Other carriers will cover work outside the employment/group setting under their policy.

It is my feeling that the latter arrangement of unlimited coverage is preferable, particularly if the insurance carrier offers severability of liability limits. If everyone has separate limits, a claim from work outside the group/employment setting won't diminish the coverage available to the group or the other insured individuals. Mental health professionalsare not sued frequently and it makes little sense to require two malpractice policies and two insurance premiums for the situation I have described. 

Pointer 2: If you are insured as an employee and/or through a group policy, look for malpractice coverage that extends to work you do outside the group or employment setting.

Premium Payment Options: Until recently, the only way you could buy malpractice insurance was on an annual basis. Today, some carriers will accept premium payments on a semi-annual or quarterly basis. Premium payment options may be valuable to you depending on your financial situation and your annual premium. Ideally, your purchase decision should be driven by the quality of the insurance policy and its ability to meet your specific risk profile, NOT the premium payment options. 

The downside of semi-annual or quarterly payments is that you run a greater risk of lapsing the policy due to non-payment of premium. Lapsing a claims made liability policy is particularly dangerous because the insurance carrier is NOT required to sell you a "tail" if you fail to pay your premium on time. Checks don't get mailed on time or may get lost in the mail, for example. It's your judgment call as to whether the benefit of having a semi-annual or quarterly payment option is worth the increase in the risk of lapsing. It may well be. 

If you want to make semi-annual or quarterly premium payments, check if the carrier has a finance charge. Some carriers don't assess a charge. Some carriers may have a modest charge. Some carriers may have a rather steep charge. 

Pointer 3: If you are interested in the premium payment options, get information on any finance charge assessed by the carrier. 

Contractual Liability - This is a feature that many psychologists overlook when shopping. It may be quite valuable for certain types of practices. Contractual liability applies to liability that you may assume through a contract, such as managed care provider contract. It is not unusual for managed care organizations to require that their providers assume liability for claims against the provider which also result in a claim against the managed care organization. Contractual liability insurance covers this risk.

Historically, contractual liability has been excluded under professional liability insurance policies. Today, only some carriers exclude contractual liability. At least one carrier provides the coverage for additional premium. At least one other carrier provides it as part of its standard contract.

Pointer 4: If you assume liability for a third party through a contract, look for coverage for contractual liability in your professional liability policy.

 

 

Employment Practices Liability Insurance

The competition in the insurance market continues with the introduction of employment practices liability insurance (EPLI) coverage to psychologists' professional liability insurance policies. Both the American Professional Agency and the APA Insurance Trust have announced the availability of this new coverage, subject to state insurance department approval. Other competitors may follow suit.

EPLI coverage usually is triggered by a lawsuit, a written demand for damages, a written allegation of discrimination, sexual harassmentor wrongful termination, or an administrative proceeding such as a filing with the Equal Employment Opportunity Commission (EEOC). The complaint is filed by an employee against a current or former employer. It does not apply to independent contractors who may work for you.

Pointer 1: If you don't employ anyone or only work with independent contractors in your practice, you don't have a risk that would be covered by EPLI.

Much has been made of the cost of EEOC complaints in the marketing
to EPLI. However, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination Employment Act, apply only to employers with 15 or more employees. An employee cannot file an EEOC complaint under any of these laws if his employer has less than 15 employees. Furthermore, an employee cannot sue an employer in federal court without having first filed an EEOC complaint.

The EEOC threshold is critical in employment practices litigation. First, an employee can file a complaint with the EEOC without the assistance of a lawyer. The EEOC will investigate the complaintand, if it determines the complaint has merit, try to resolve the issue with the employer on the employee's behalf. If unsuccessful, the EEOC may sue the employer in federal court or issue the employee a "right to sue" letter which allows the employee to sue in federal court. The federal laws mentioned earlier authorizes the Court to order the defendant to pay the plaintiff's attorneys fee, if the plaintiff prevails in the claim. As a result, many lawyersspecializing in employment practices take such cases on a contingencybasis. The employee usually pays nothing to litigate. 

Pointer 2: If you have less than 15 employees, you are not subject
to regulation by the EEOC and you face no risk of EEOC complaints.

Any employee can sue over employment related issues such as discrimination, harassment, or wrongful termination in state court. However, that means the employee will have to retain an attorney to file the suit. Unlike malpractice claims, most attorneys do not accept employment related claims that fail to meet the EEOC threshold on a contingency basis. The reason is simple: nearly all insurance policies exclude or limit coverage for settlements or damages associated discrimination and harassment. Thus, winning civil litigation in state court is no guarantee that the employee'sattorney will be paid. Certainly, the employee could pay legal fees out of personal funds, but most employees simply don't have the money to fund lengthy civil litigation. 

Pointer 3: Lengthy employment practices litigation that has failed to meet the EEOC threshold is unusual. Most claims are resolvedquickly because the employee is bearing the costs of his/her own legal fees.

What exactly is being offered to psychologists as part of their professional liability coverage? The APA Insurance Trust is providing EPLI coverage for defense costs and liability up to a sub-limit of $5,000 as part of their standard professional liability policy. Additional coverage up to a sub-limit of $15,000 is available at a nominal cost. The American Professional Agency is offering EPLI coverage for defense costs and liability up to a sub-limit of $25,000 for an additional annual premium of $60 per policy.

Pointer 4: Large group practices with 15 or more employees should have the most to gain with the addition of EPLI to their professionalliability policies. However, it is unclear if the sub-limits being offered are sufficient protection for large practices. It may be more practical for large groups to purchase EPLI when packaged with other insurance coverage such as directors and officers liability or commerical general liability.

EPLI coverage is a welcome enhancement to the existing professional
liability programs, however, its real value is dependent on how the insured operates his/her practice. 

 

 

What is Claims Made Coverage?

Over the last 15 years, I have noticed that nothing will make a mental health professional's eyes glaze over faster than a discussion of claims made coverage. It is boring, but it's not that hard to understand. You only need to consider three features of claims made coverage to understand how it works: the "tail," the "nose," and step rates. 

The Tail - Claims made insurance means you have buy coverage for a given policy period. If you have a claim, you have to meet two tests. The alleged action had to occur during the policy period AND the policy has to be inforce when the claim is filed. On the surface, it would seen that claims made would force you to renew your insurance policy with the same carrier in order to keep coverage. 

But there is an escape clause in claims made policies -- an extended reporting period or a "tail". A "tail" allows you to stop renewing the claims made policy, but still have claims that occurred during the policy period covered in the future. All "tails" are not same and you need to look for two specific features when comparing "tails." 

First, the "tail" should last forever. This type of "tail" is known as an "unlimited tail" because you can report claims that occurred in the policy period at any time in the future. In the mental health fields, it is not uncommon for a claim to be filed 15 or 20 years after the alleged malpractice. A 5 or a 10 year "tail" is risky. 

Pointer 1: An "unlimited tail" is the only "tail" that really fits the risk faced by psychologists.

Second, check the cost of the "tail." Most carriers will charge for the "tail" in some circumstances and provide it at no charge in other circumstances. The cost of the "tail" is a factor of the last annual premium; most unlimited tails range between 175% - 250% of the last annual premium. You'll have to buy the "tail" unless you meet the condition where it is given to you free of charge. Most carriers provide a "free tail" upon death, permanent disability or permanent retirement. Some carriers also may require that you have bought insurance from them for a period of consecutive years, while other carriers have no such requirement. 

Pointer 2: Consider the cost of the tail and the conditions where it is available at no cost to you. Look for a tail that best fits your personal circumstances.

The Nose - Prior acts coverage or a nose is the opposite of a "tail." Instead of buying a "tail" from your old carrier, have your new carrier cover you retroactively to the date you started your old claims made policy. Why would you buy a "nose" rather than a "tail"? Because, in general, "noses" are cheaper than "tails."

Making the comparison is easy. The only piece of information you need is the date your claims made policy started; this is known as your "retroactive date." Your old claims made carrier should have no difficulty giving you that information if you don't know it yourself. Your old claims made carrier can give you the cost of a "tail". Shop that figure against what the claims made new carrier will charge for a "nose", that is, coverage starting on your retroactive date.

Pointer 3: Usually it is cheaper to buy a "nose" rather than a "tail" when changing claims made insurance carriers.

Step Rates - "Noses" are nearly always cheaper than tails because of step rates. When you buy a "nose," you are simply buying in at the appropriate step rate for your retroactive date.

Again, a claims made policy requires that you meet two tests. The alleged action had to occur during the policy period AND the policy has to be in-force when the claim is filed. Very few claims both occur and are filed in the first years of a claims made policy. In fact, it typically takes 3 to 5 years between when the event occurs and when the claim is filed. Because the risk of a claim is so low during the first years of a claims made policy, the premium structure is set to increase in "steps" over time. The first year of the policy is deeply discounted, the second less so, etc. until you reach the ultimate or "mature" rate. Once a rate is mature, it should stay the same with occasional adjustments for inflation and/or changes in the profession's loss experience. The industry standard for claims made step rates is 5 years, but some carriers offer step rates over eight to ten years.

When shopping claims made malpractice programs, you should ask for the step rates for each and every year through maturity. If the agent or carrier can't get you this information, something is wrong. Actuarially, claims made rates can only be developed by establishing the "mature" rate then adjusting it to accommodate the number of steps used. All admitted carriers have to file these step rates with your state insurance department. Personally, I wouldn't buy a claims made policy from an agent or a carrier that could not give me complete step rates. 

Pointer 4: Get complete step rates from Year 1 to maturity when shopping malpractice plans.

I hope that I haven't bored you to tears. Keep in mind, that availability of "tails" and "noses" make changing insurance carriers easy. The current claims made market place is filled with sharply reduced step rates, new discounts and new coverage options as insurance carriers compete for your business. You may want to take advantage of this competition to obtain improved coverage at lower rates.

 

 

Is Occurrence Coverage Better Than Claims Made Coverage?

A sea of ink has been expended in this debate over which policy form is better. Yet, while the policy form is an important consideration, it can't be separated from the context of the insurance contract. An occurrence policy with poor coverage features is not going to compare favorably to a claims made policy with an unlimited tail and strong coverage features. The value of the policy form is going to depend on the coverage it buys. Don't separate the two. 

Pointer 1: Don't use the policy form as a litmus test for shopping the market.

Mental health professionals have a choice between claims made or occurrence forms in the current marketplace. However, not every malpractice program advertised by occurrence is really a true occurrence form. Believe it or not, there are impostors out there! 

A pure occurrence product means that you are insured for covered actions during that policy period forever. You buy it once, you are covered forever. A claims made policy may work just like an occurrence policy. You are insured for covered actions during the policy period forever if you buy or are given the "unlimited tail" at the end of the policy period. Some carriers offer a claims made policy with a pre-paid "unlimited tail," meaning that the cost of the "tail" is included in your annual premium. There is no "tail" to purchase at the end of the policy because you have beeen pre-paying it all along. But is a claims-made policy with unlimited tail", prepaid or otherwise, exactly like an ocurrence policy?

Say you have a $1 million occurrence policy which you renewed each year for ten years. You would have $1 million coverage for each and every one of those ten years. Compare it to a $1 million claims made policy with the unlimited (either paid at the end of the policy period or pre-funded) which you renewed for ten years. You would have $1 million in total covering the entire ten year period. Personally, I think a $1 million of liability coverage for a ten year period is perfectly adequate. I have no problem with claims made products with unlimited tails, pre-funded or otherwise. However, you should NOT be paying occurrence prices for what is a claims made product.

Pointer 2: Look at the specimen policy. If it is claims made, it has to be clearly labeled "This is a claims made policy." A claims made policy with a pre-paid tail IS NOT an occurrence policy. 

You should also be aware that a claims made policy with a pre-paid tail generally does not provide "free" tail coverage in the event of death, disability or permanent retirement. Most of us don't plan our death or disability, but we do plan our retirement. 

Pointer 3: If you are approaching retirement, a claims made policy with a "no cost" tail upon retirement may be a better bargain than a claims made policy with a prepaid tail.

Finally, pre-paying a "tail" may not be in your best interest. Depending on the circumstances, you may never need to buy a "tail" for your professional liability policy. Your state insurance department requires that "tails" are offered with claims made policies, so your right to buy a "tail" is not going to disappear. Why pay the higher premium rates for a claims made policy with pre-paid "tail", unless you are certain that you will have to buy the tail.

Pointer 4: Pre-paying a "tail" when both "noses" and "free tails" are available in the marketplace may not be in your best interest.

In general, a pure occurrence product should cost more than a claim made product. It should cost more because you are buying more liability coverage. If you see an occurrence rate that seems to good to be true -- it's probably the case. First, check to see if the policy really is occurrence rather than claims made with a pre-paid tail. Then, check what the policy covers and what it excludes. What looks like a bargain may quickly lose its luster when you read the fine print. Pure occurrence products are available, but the real thing doesn't come at bargain basement prices.

The real competition among insurance carriers has been in the claims made arena. There has been some serious rate and coverage competition in progress during the 1990's. Nearly all the exciting new features such as severability of limits, licensing board coverage, and premium discounts/credits generally are available on the claims made rather than occurrence products. The availability of unlimited tails makes a claims made an attractive insurance option for psychologists. Plus, claims made premium rates should offer some real premium savings over a comparable occurrence product.

Remember, psychologists aren't sued very often, and when sued, the vast majority claims cost well under $100,000. Few psychologists are sued more than once in their lifetime. Given these trends, stretching your liability limits over a number of years with a claims made program is not particularly risky.

Occurrence versus Claims Made -- that's your choice. Either form can be the perfect fit for you depending on the actual coverage it provides you.

 

 

Insurance Shopping for a Group Practice

The number of group practices has grown dramatically in the 1990's. Mental health professionals are joining formally and informally organized groups, some of which include a variety of mental health professionals. Insurance shopping for a group practice is more challenging that shopping for an individual policy. Typically the interests of the group and the individuals who comprise the group must be considered. However, there can be some major savings on group premiums for the shrewd shopper willing to research the current competitive market.

First, is your group practice formally or informally organized? Many psychologists share office space and overhead expenses. They may even operate under a fictitious name dba such as "Good Therapy Associates" even though there is no formally organized partnership or corporation. Such informally organized practices cannot be insured because they don't exist as a legal entity; each professional provides his/her own malpractice insurance. However, some insurance carriers may restrict coverage for practice in informally organized groups because of the potentially increased risk of vicarious liability claims. 

Pointer 1: If you belong to an informally organized group practice, be sure your malpractice insurance policy covers your liability for being included in a claim against another member of your group. Check the policy exclusions and limitations for any language pertaining to vicarious liability. Check if additional premium is charged for vicarious liability.

For insurance shopping purposes, a formally organized group is one that is legally established as a partnership or a corporation and has at least two or more professionals as owners/employees. If you are a solo practitioner incorporated as a Professional Association or a Professional Corporation and have no employees, insurance carriers treat you as an individual insured. 

Look for insurance policies which offer severability of limits. Severability of limits means that all named insureds under a policy have separate liability limits, not shared liability limits. For example, if you buy a policy with $1 million/$3 million liability limits, each and every named insured as well as the partnership or corporation has $1 million/$3 million of coverage. If limits are not severable, then everyone shares the $1 million/$3 million of coverage. 

Pointer 2: Severability of liability limits is an important feature for incorporated individual practices and group practices. 

Ask about the insurance policy's scope of coverage. Most insurance carriers require that all professionals in a group practice and all employees, either of an individual or a group practice, are insured under their malpractice policy. Where the carriers differ is whether the malpractice coverage extends beyond the employment and/or group setting. Some carriers will not cover any work outside the employment/group setting. Individuals would have to buy a second insurance policy for the outside work. Other carriers will cover work outside the employment/group setting under their policy. 

Pointer 3: Scope of coverage is a business decision to be made by the group's management. Some groups want a narrow scope and other groups want a broad scope.

Insurance carriers do not calculate group insurance premiums in the same way. Generally, premiums are based on the number of employees and independent contractors on the policy anniversary date. However the premium rates charged and premium discounts/credits given can get complex. There may be a significant variation in the rates charged for the same group among competing insurance carriers. 

Pointer 4: Get a rate quote including a breakdown showing how your group premium is calculated. If you are looking at a claims made policy, be sure to get the step rates up to the mature rate, so that you know about any projected increases in your premium rate. 

 

 

How Much Malpractice Coverage Should I Buy?

The answer is not simple. Many malpractice carriers are offering up to $2 million per claim and $4 million aggregate in coverage. Some carriers may offer higher limits. However, if you buy the maximum coverage, you may be overinsuring yourself for your risk profile.

First, it's important to understand what a liability limit means. Malpractice insurance comes in two limits; a per claim limit which is the maximum coverage for any one claim and an aggregate limit which is the maximum coverage for all claims covered by the policy. The aggregate limit is always equal to or higher than the per claim limit. So if you buy, $1 million/$3 million in coverage, you'll be covered up to $1 million for each claim and a total of $3 million for all claims.

Liability limits should only apply to settlements and damage awards under most insurance programs for psychologists. Legal fees and other defense costs should be paid in addition to the liability limits. About one-third of all professional liability claims against psychologists do not involve the payment of a settlement or a damage award.

It is unusual for a malpractice claim against a psychologist to cost over $100,000. While there have been a few claims of $1 million paid on behalf of psychologists, the frequency of high dollar claims against psychologists is quite low. Insurance is purchased to address the risk of catastrophic loss, but it is important to keep what you consider catastrophic" in perspective when buying insurance. The risk of a $1 million malpractice settlement or damage award probably is greater than the risk of being hit by lightning. 

At least two major carriers are offering severable liability limits. This means that if there are multiple professionals covered under one policy, each professional has separate per claim and aggregate limits. If you are insured under a group policy with severable limits, that means that your liability limits are not reduced if another member of the group is sued for malpractice. If your liability limits are not severable, then everyone in the group shares those limits. In a situation where the limits are not severable, it would be wise to consider higher limits.

Pointer 2: Severability of limits may reduce the need for group practices to purchase high liability limits. 

Managed care organizations and hospitals typically ask for $1 million/$3 million in liability limits, which is the minimum standard for physicians. The loss experience for psychologists as a class is not comparable to physicians as a class, but you may be required to purchase this amount of coverage nonetheless. If you can convince the managed care company or hospital to accept $1 million/$1 million liability limits, you will save on premium dollars. 

Pointer 3: Try to negotiate "required" liability limits whenever possible.

I do not want to mislead you in believing that there is no need for high liability limits. There are some very good reasons for carrying higher limits. There are some areas of practice which have a higher risk of suit and/or the payment of settlements and damage awards. For example, if your case load includes a number of suicidal patients or concentrates in the area of "repressed memory/false memory", you probably have an increased risk exposure. If you work as a contractor with a number of private or governmental agencies, having high liability limits may be a plus, particularly if these organizations are listed as named insureds under your policies. Large group practices where psychologists have supervisory authority over a number of mental health professionals and/or who have quality assurance responsibilities over a large client base may want higher limits. 

Higher limits should be a consideration if you are planning to permanently retire from practice and are insured under a claims made policy. Remember that retirement triggers the "free" tail coverage under several insurance carriers' policies. This "free" tail will be based on your last limits of liability and covers the entire period of your claims made policy. Increasing your liability limits prior to retirement is worth considering because you will receive a much larger "free" tail for a marginal increase in premium during your final year of coverage. 

You may want to consider higher limits even if you are buying a tail. The liability limits of a claims made coverage apply from the period of your retrospective date to your termination date. If you are terminating a policy that has been in force for many years, do not qualify for a "free" tail, and are not buying prior acts or "nose" coverage from another carrier, then increasing your liability limits prior to termination should be a consideration. You are entitled to buy a "tail" based on your last liability limits. Although a "tail" based on higher limits costs more be cause the premium rate is higher, you would get far more coverage for the entire policy period upon termination. If your claims made policy period is ten years or longer, you may want higher limits if you decide to buy a tail.

Pointer 4: Consider purchasing higher liability limits prior to permanent retirement, particularly if your insurance carrier provides a "free" tail upon retirement. Also consider higher limits if you are buying a tail for a claims made policy with a long policy period. 

I want to stress that there is no tried and true formula for determining if you need higher limits. It never hurts to discuss your professional activities with your insurance agent/carrier. Although an insurance agent/carrier will earn more money if you buy more insurance, my experience with the major players has been that they are candid and do not push higher limits arbitrarily. Even if you have no intention of purchasing higher limits, their availability should you want them is a plus when shopping the market. 

 

 

Customer Service

Customer service seems to get the short shrift when we are shopping in surance. We focus on the policy, its features, and its price. Obviously, these things are very important, but then, so is the customer service you receive from the agent and/or carrier.

Most psychologists will never be sued for malpractice in their professional lifetime. Thankfully, you'll never have to use that wonderful policy you have purchased. However, all psychologists are going to require some sort of customer service over time. You may need to get a simple question about your answered, you may need to change your liability limits, you may need a certificate of insurance, or you may need some risk management advice. The bottom line is that you are going to interact with the agent and/or carrier. Since customer service is the one concrete thing all will insureds get from their malpractice carrier, you should shop it, too.

Call your malpractice agent or carrier -- they all have toll free numbers. Do you get lost in some automated phone system or does a "real" person answer? Can you get to the person or department you want? Can you get answers that make sense? If follow-up to a question is required, is the response timely? If a malpractice agent or carrier has a booth a convention you are attending, check the quality of the representative in that booth. Can the person staffing the booth discuss the key features of the insurance policy, including its strengths and weaknesses when compared to its competitors? Are you satisfied with the service you are receiving?

Pointer 1: Take advantage of toll free numbers and vendor appearances to talk with insurance carrier representatives. Assess how they serve you responding when asking a routine question. It may be a good indicator of the type of service you'll receive from the agent or carrier. 

Your call most likely will be answered by a clerical/administrative employee or the insurance agency or program. Typically, clerical/administrative employees are not licensed insurance agents, but they should know their policy inside and out. As the front line of customer service, they should be perfectly competent to answer most of your questions. However, you should be able to speak to a licensed agent if need be. An agent is held to a higher standard of knowledge and professional conduct than unlicensed staff. 

Pointer 2: Look for the availability of staff licensed in property and casualty insurance to assist you when needed. 

The current competition in the marketplace should be a good test of customer service. When you shop your insurance, you should be able to get specimen policies. You should be given premium information, including ALL step rates for a claims made policy. Remember, the insurance carrier is required to provide this information by your state insurance laws. There should be no problem with providing it promptly upon your request. Anything less should be suspect.

You should be able to get basic information comparing the agent/carrier's policy to its competition. While this comparison information will highlight the areas that favor the agent/carrier's policy, this information should show areas where the policies differ. Beware of comparisons that are too simple, such as Yes/No comparisons. The differences between insurance contracts are rarely that black and white. Beware of brief comparisons. Chances are that the agent/carrier is being very selective. This series of articles has discussed insurance carrier quality, policy form, policy features and premium structures. A good comparison should address all of these areas.

Check to accuracy of information provided, particularly about the competitor. Agents/insurance carriers should read their competitors' specimen policy before developing comparison information. You should not see or hear inaccurate or misleading statements about a competitor's product. You should not be hearing disparaging remarks or statements which raise fears about a competitor's product, unless there is factual evidence to back up such statements. All state insurance departments prohibit "misrepresentation" in marketing insurance products.

Pointer 3: Ask for specimen policies, complete rate information and any product comparison information. Expect prompt and accurate service. Be suspicious of any fear tactics used when discussing a competitor's product.

 

 

Professional Liability Premium Rates

Setting professional liability insurance rates is more of an art than a science. Typically, insurance rates are based on several variables. First, the risk is measured according to statistics of past losses available to the insurance carrier. Second, the administrative expenses needed for servicing a policy and handling claims are calculated. Third, insurance carriers build in a profit margin into their rates. 

There is one important idiosyncrasy to remember about professional liability claims: they do not exhibit a normal frequency distribution for incidence or for severity. Professional liability claims against psychologists are still infrequent and their ultimate costs are not readily predictable. Consider automobile insurance in contrast. Accidents involving automobiles happen with great frequency. The property damage and/or bodily injury costs from such accidents are easily quantified. A large auto insurance carrier may handle 500,000 or more claims a year, while a professional liability carrier may handle only a few hundred claims a year. The result is that auto insurance rates are more likely to reflect the risk insured than professional liability rates. 

All insurance carriers do not use the same assumptions when determining premium rates. There is no national data base available to insurance carriers on professional liability claims against psychologists. The insurance carrier has to use past loss experience or, if it is offering a new program, make an educated guess based on competitors' programs. Some carriers may be better managers and can keep administrative expenses down. Insurance carriers also will differ on the target profit margin. For example, a new competitor might use a lower profit margin when determining rates in hopes of capturing more market share. 

Most psychologists are aware that there is major rate competition among insurance carriers offering both claims made and occurrence based professional liability policies. The price competition is fierce and difference between competing programs in some states can range from less the $100 to more than $1,000 a year for comparable policies. In my opinion, differences in premium rate that are less than $100 shouldn't drive a purchase decision. The quality of the carrier and the features of insurance contract are far more important. However, when rate differences are $200 or more, it is time to do some comparison shopping. While no two competing insurance programs will be exactly the same, in some cases there differences will be minor aside from the premium rate.

All my pointers assume that the policy features and carrier quality are more or less equivalent between policies. When comparing insurance policies, be sure you are comparing "apples to apples" before making a purchase decision. A low-cost policy may be no bargain if the coverage is restrictive or the carrier is not financially sound. Here are a few tips for shopping price:

Pointer 1: When comparing occurrence programs, it is simply a matter of which policy is the least expensive if you are shopping for price.

Claims made rates are a little harder to compare than occurrence policies. Claims made rates increase in steps until the premium levels out to a mature rate. Not all carriers use the same number of steps. While several major carriers are using a five year step rate, one major carrier has moved to a six year step rate. I also recommend including the cost of an unlimited tail in a comparison. While most psychologists will never need to BUY a tail for their claims made policy, including its cost provides an "worst case" scenario on the policy's cost.

Pointer 2: When comparing claims made policies, compare the step rates through maturity. If you are shopping for price, the lowest mature rate and the potential cost of the tail can determine which policy is least expensive.

Comparing the cost claims made and occurrence policies are a bit trickier because these policies can never be equivalent. A claims made policy provides on set of liability limits for the entire policy period, whether it is one year or twenty years. An occurrence form provides one set of liability limits for each year the policy is in force. This is an intrinsic difference between the two policy forms and should be considered in any comparison. 

Pointer 3: When comparing claims made to occurrence policies, average each policy's premium rates over the time period it takes for the claims made policy to mature. Be sure to add the potential cost of the unlimited tail to the claims made rates prior to averaging the cost. 

 

 

Vicarious Liability

Vicarious liability is the liability you may assume, purposely or not, for the actions of another person. Based on the legal principal of Respondeat Superior, the premise is that the professional (the "Master") is responsible for the damages created by the employee (the "Servant"). If the omission or commission occurred within the employee's scope of duty, the employer is likely to be liable for damages. Even in a case where the employee hid his or her actions from the employer, the employer may be liable if due care was not taken in establishing and implementing administrative safeguards for client care.

For many psychologists, the greatest exposure to vicarious liability may come through informal group practices, rather than formal employer/employee or supervisor/supervisee relationships. Informal group practices take many forms, but typically involve some office expense sharing arrangement between individual therapists. Some informal group practices may adopt a dba (doing business as) for the group, even though it is not a legal partnership or a corporation. 

Any form of group practice, whether formally or informally organized, increases the risk of a malpractice suit alleging vicarious liability because it creates a real or seemingly real association among two or more parties. The case law is plentiful regarding the relationship between employer and employee vis-a-vis malpractice. The case law is not as clear regarding the relationship between colleagues vis-a-vis malpractice. Certainly the absence of a legal relationship for a group practice will not protect the group and its members from inclusion in a malpractice suit or from a client prevailing in a suit against them.

Having acknowledged the increase in risk exposure associated any group practice, I would not suggest that psychologists avoid group practices. The marketplace is such that only a limited number of sychologists can survive in solo practice. Group practices, whether formal or informal, are the norm. The more sensible risk management technique would be to insure for vicarious liability and take administrative steps to limit risk exposure for a group practice.

Insuring for vicarious liability is easy. All the major insurance carriers underwriting psychologists will cover vicarious liability under their policies. One major insurance carrier has stricter underwriting policies regarding informally organized group practices and may charge an additional premium for vicarious liability coverage for informal groups. Another insurance carrier simply covers vicarious liability without special underwriting or additional premium. If you are uncertain how your insurance policy covers vicarious liability, contact your insurance carrier or program administrator for further information. The professional liability market is highly competitive at this moment, so you should no difficulty obtaining vicarious liability coverage that suits your particular risk exposure.

Pointer 1: If you engage in professional activities which include collaboration with other professionals be sure that your professional liability insurance policy completely covers vicarious liability. Try to avoid policies that restrict coverage for vicarious liability through policy language or burdensome underwriting rules.

There are a few administrative steps that are worth considering to limit your risk exposure for an actual malpractice claim. First, obtain legal advice regarding the organizational options available to you. There are pros and cons for formal and informal organizations. How your practice is organized should be based on a business decision that considers the financial, legal, and professional implications for your practice. It should not be purely driven by concerns over professional liability exposure. At this time, coverage for vicarious liability is readily available to psychologists.

Pointer 2: Do not let your professional liability policy dictate how your practice is organized. Your insurance policy should be covering the risk, not micro-managing your practice.

Second, check the status of all licenses and presence of any disciplinary orders with the appropriate boards whenever you work with another professional. In the case where the professional has a dual license, check with both boards. Check any references by speaking directly to the person listed as a reference. Expect that your licenses and references will be checked in the same way. Also, recheck the status of licenses periodically.

Some psychologists may be uncomfortable to take such a "non-collegial" approach, but none of my suggestions have to be handled in an adversarial fashion. In my opinion, if you are going to work with another professional, it is reasonable and appropriate to check each other's professional qualifications. The last place you want to learn about problems with a colleague's qualifications or lack of insurance coverage is after a malpractice suit has been filed against you alleging vicarious liability.

Pointer 3: Taking reasonable and consistent care in selecting all the professionals you associate with may be an invaluable protection in the event of malpractice litigation alleging vicarious liability.

Third, be sure that all professionals you associate with have current professional liability policies. Most insurance carriers will require formally organized group practices that the group and all professional employees are covered under the group policy. However, formally organized groups have a vicarious liability exposure for independent contractors and professional referrals. Maintain a central file containing, at minimum, a copy of the declarations page of each professional's insurance coverage. In the case where a professional has coverage through another group practice or an institution, verify that insurance coverage extends to professional activities outside the insured group or organization. 

Pointer 4: Be sure that "moonlighting" is not prohibited by the insurance coverage if you associate with another professional having group or institutional coverage from another source. 

Particular care should be given to professional associations with physicians. Many physicians have their malpractice coverage through hospitals. Not only might hospital provided malpractice insurance limit the extent of coverage for work outside the hospital, it also might limit or exclude coverage for services provided in association with non-physicians. Remember, for insurance purposes, physicians are insured under medical malpractice policies and psychologists are insured under professional liability policies. It sounds arcane, but differences between the two types of policies could result in significant exposure to vicarious liability. 

Pointer 5: Medical malpractice and professional liability policies are different types of insurance contracts. It is important to understand the extent to which each insurance contract will cover claims resulting from an association with non-medical health care professionals before entering a professional relationship with a physician. 

 

 

Insurability and Professional Liability Insurance

Psychologists often take their insurability for granted, particularly in a 
competitive insurance market. However, being insurable is a necessity when it comes to professional liability insurance (PLI).

Simply defined, being insurable is being able to obtain insurance. Depending on the type of insurance sought, there may be degrees of insurability. For example, if you have a health condition that increases your risk of sickness or death, chances are you will be considered a non-standard risk for life insurance, health insurance or disability insurance programs. You may still insurable because a carrier would offer coverage, but the policy is likely to be "rated" for the risk. Your premium probably will be higher than a standard risk policy and the coverage may be limited. 

PLI is more restrictive than other types of insurance on the issue of insura-bility. Since professional liability claims do not exhibit a normal frequency distribution for incidence or for severity, insurance carriers have a more difficult time predicting losses or the risk factors which may lead to losses. The result is that most insurance carriers will only insure a psychologist for professional liability if he or she is a standard risk.

What exactly is a standard risk for professional liability insurance? First, 
insurance carriers look for no prior history of claims. Second, insurance carriers look for no prior history of licensing board complaints or ethics committee actions. Third, insurance carriers ask if another insurance carrier has canceled or declined to offer coverage. Most psychologists will have no difficulty meeting these criteria.

What is interesting is that most insurance carriers ask few details, if any, about the psychologist's practice. PLI carriers simply cover a psychologist for the "practice of psychology", whatever it may be, as a standard risk. 

Is a psychologist insurable if he or she has some prior history on any of the above three points? Yes, depending on the circumstances, insurability may not be compromised by claims, licensing board actions, ethics complaints, or prior insurance cancellation. The circumstances are going to be considered in the context of the psychologist's practice. For example, psychologists who perform employment related testing on police officers tend to be sued with greater frequency than their colleagues who don't engage in this line of work. The circumstances also are going to be considered in the context of the complaint. A licensing board action over an advertising issue probably won't alarm an insurance carrier. 

Even a claim that is settled for a large sum will be considered within the context of the case. PLI claims are settled for a variety of reasons, many of which have nothing to do with the culpability of the psychologist. For example, suicide claims are more likely to be settled for higher than average amounts because of the absolute nature of the loss, particularly when the patient is survived by minor children. If the insurance carrier does not believe the psychologist did anything wrong, then the psychologist still is insurable. PLI carriers will consider insurability within the context and not arbitrarily cancel any insured who has had a claim.

The one sure way to become uninsurable is to attempt or enter into any type of erotic sexual relationship with a current or recently terminated patient. These type of claims are called as "sex claims" in insurance jargon. Insurance carriers despise "sex claims" and have taken steps limit or exclude liability in their insurance contracts. It is important to note that many "sex claims" are false. Patients can become angry enough to make false allegations against their therapists. Insurance carriers have no difficulty continuing coverage for psychologists who have the misfortune of being falsely accused in a "sex claim". However, insurance carriers have great difficulty continuing or offering new coverage for psychologists with a claim, licensing board complaint or ethics complaint where the sexual misconduct is admitted to or proven. 

Where can a psychologist go to obtain insurance if he/she is not considered insurable by the traditional sources? The marketplace is limited. I personally recommend using an experienced property and casualty broker who has handled non-standard risks. Some excess and surplus lines carriers may consider writing coverage. It is also possible that Lloyds of London may underwrite the risk. However, both the surplus lines and Lloyds market are going to charge steep premiums and are likely to offer deductibles and limited coverage, if they will underwrite the risk at all. The even more likely scenario is that the psychologist is uninsurable.

How long can a psychologist be uninsurable? Even in the current competitive climate, uninsurability can be permanent, particularly when a "sex claim" is involved. The argument that behavior can be changed may be compelling, but insurance carriers generally are unwilling to take the risk again once sexual misconduct has been admitted to or proven.