Can You Cancel a Claims-Made Policy Without Buying Tail Coverage?
Many medical professional liability companies only offer claims-made policies to behavioral healthcare providers like you. You are probably familiar with some common assumptions associated with claims-made policies:
– A claims-made policy protects you against claims for an incident if the policy is active when the “claim” is “made”. Correct!
– An incident must be within the coverage dates for claims-made coverage to apply. Correct!
– You must purchase tail coverage if the claims-made policy is cancelled. FALSE!
False? Yes, false.
If you are currently insured with a claims-made policy from another company, you can transfer your current coverage (retroactive date) to your new policy – there is no need to buy tail coverage. By transferring your retroactive date, any claims that you would have reported to the former company may now be reported to your new company. In some cases, rates for retroactive coverage (also called prior acts or nose coverage) are lower than your current company’s tail coverage rate. A tail may be available to you at no additional charge, depending on the company, if you meet certain guidelines. For example, PRMS currently waives the tail cost if you:
– Need to cancel coverage as a result of death or permanent disability, or
– Permanently retire from the practice of medicine and are at least at age 55 and have maintained a claims-made policy for at least five consecutive years with PRMS immediately preceding retirement, or
– Had 10 continuous years of claims-made coverage with PRMS if you meet underwriting guidelines
You may be currently covered under a group policy. Some group policies insure many providers and, depending on the nature of the policy (e.g., you share coverage with the employer), you may leave the group and not have to buy tail coverage. Or, you may have to buy tail coverage years later if the group policy is cancelled and the employer does not purchase tail for the providers. This may be very difficult to purchase from any insurer years later. It may be in your best interest to transfer your retroactive date to a new company and avoid this potential problem in the future. There are circumstances when you will still need to buy tail coverage:
– You change jobs and your new employer provides insurance for you (e.g., hospital or university) or otherwise pays your coverage; however, they will not insure the retroactive coverage.
– You do not immediately start a new policy. If you take a sabbatical or a break between jobs, you may not need new coverage right away. Offers to buy tail coverage may only last a few weeks so you may need to purchase tail coverage to avoid gaps that can negatively impact your ability to buy future coverage. Not buying tail coverage counts as a gap.
– You want to transfer from a claims-made policy to an occurrence policy. Prior acts coverage may be available on an occurrence policy but there are no guarantees. Prior acts coverage on an occurrence policy can be expensive which is why most providers I work with buy retroactive coverage on another claims-made policy.
– The new company does not offer retroactive coverage. If the new company does not insure providers from the state you moved from or there is an adverse history like claims, the new company may require you to buy tail coverage before switching.
You have choices! Even if your company says you must buy tail coverage, you may not have to do so. Contact me if you want to learn more at firstname.lastname@example.org or (703) 907-3894.
By: Rich Stagnato
Mr. Stagnato is responsible for new and renewal business, providing customer service, insurance counseling as well as obtaining competitive data on the medical malpractice market. He is a licensed Property and Casualty agent. Richard Stagnato rejoined PRMS in 2004 after almost a year as an underwriter at NCRIC. Prior to joining the company in 2000, he had been an insurance specialist for five years with the Boat U.S. insurance program.