Professional Liability Insurance
Professional liability insurance (also called malpractice insurance) is coverage that protects a qualified professional against claims alleging negligent acts, errors, or omissions in the performance of providing professional services (defined as those services for which one is certified, licensed, accredited, trained, being trained, or otherwise qualified to provide as specified in a given insurance policy).
All practicing healthcare providers need professional liability insurance! This is the case whether an individual is employed, self-employed in independent practice, or in training. Why? Because the cost of a malpractice claim could be so high that it could easily wipe out a lifetime of savings. Also, the cost of defending against a board complaint or government investigation, even if it is frivolous, could also run into tens of thousands of dollars. Professional liability insurance is the primary (if not the only) line of defense in protecting one’s personal and business assets.
Five things to consider before you purchase professional liability insurance:
- Find a reputable insurance company — one that is fully licensed in all jurisdictions, is financially stable (check the A.M. Best rating), provides support with claims, provides confidential ethics and risk management consultation (such as The Trust’s Advocate 800 Program), and has competent and convenient customer service. Ask colleagues and mentors for recommendations. Professional associations are another good resource when searching for reputable insurance companies. Strong recommendations which cite specific strengths and benefits are solid indicators of a company’s good reputation.
- Don’t assume that the least expensive policy is the best. For professional liability coverage, the devil is often in the details. That is, the wording of the contract spells out the scope of coverage, and an inexpensive policy may represent limited protection. For example, the policy might exclude higher-risk areas such as working with victims of trauma and performing custody evaluations. Some insurers may offer less expensive premiums by reducing the policy limits by the amount of legal costs the company incurred in defending the psychologist. Some policies may only cover the defense of claims filed by a patient (and not third-party claims, such as might occur if a patient injures a third party).
Professional liability policies generally exclude coverage for certain events such as claims for unlicensed practice; dishonest, criminal, fraudulent, or intentional acts; business relationships with current or former clients, and claims arising out of prison work. Most policies also have specific limitations for sexual misconduct claims, but the nature of these limitations is especially important. Some carriers will not defend any sexual misconduct claims. Unfortunately, psychologists acting honorably can still be falsely accused. Fortunately, the best policies will defend against such accusations, but be aware that most policies will not pay damages or only pay limited damages.
- If you are or will be insured under an employer/agency/institutional policy, find out the extent to which you as an individual are covered and seriously consider purchasing your own coverage. Otherwise, will you be fully protected and receive priority when allegations of malpractice or misconduct are made? Will you be fully covered for the costs of defending a complaint filed with a licensure board? Will your employer’s policy defend you for activities outside of your employment contract, specific employment setting, or what is considered you or your employer’s scope of practice?
Employer or facility-based insurance policies are designed primarily to provide coverage for the larger entity, and then by extension cover the individual employee. The policy may limit coverage to a narrowly-defined scope of employment, and it may not provide sufficient individual coverage for Board complaints. Individual policies generally provide broader definitions of coverage, have fewer exclusions, include full separate limits for defending board complaints, and mitigate any divergence between the needs of the employer and those of the employee when a claim or complaint is filed.
When an individual separates from employment, depending on the scope of the policy, they should remain covered under the employer’s policy for services provided during the employment period, as long as the employer or facility remains in operation and renews coverage. An extended reporting period (ERP) or “tail” coverage is generally not provided to departing employees. Without one, any claim filed against you for work conducted during your years of employment could be financially devastating to you. Again, it is wise to know the coverage and limitations of an employer’s professional liability insurance policy.
- Choose the coverage amount that matches your level of risk. Today most practitioners purchase $1 million per incident and $3 million per policy period; that is, the policy will pay a maximum of $1 million for a single incident and up to $3 million for the year the policy is in force. If you’re practicing in a professional area with a higher probability of suits or complaints (with at-risk patients, for example), consider purchasing higher limits. You may also want to consider higher limits if you practice in a volatile legal environment-one where high jury verdicts make national news. Also, make sure the policy includes coverage for licensing board complaints and Medicare/Medicaid investigations.
- Choose the type of coverage best suited for your situation. Professional liability policies are offered in two forms: occurrence and claims-made policies. Occurrence policies are usually more expensive in the first few years than claims-made policies, but it is generally easier to understand and administer. Claims-made policies costs less initially especially in early years (the pricing differential eventually nearly matches that of occurrence policies over time), but the coverage requires one to be more diligent about either renewing the policy or inquiring about coverage options if one discontinues the policy.
- An occurrence policy covers alleged misconduct that occurred during a policy period. The claim can be reported anytime regardless of whether the policy is in force at the time of the report. A special feature of occurrence policies is that a practitioner may drop an occurrence policy at any time (e.g., as a result of retirement, a job change, a change in carriers, or transition to a claims-made policy) without fear that a suit filed in the future for alleged malpractice that occurred when the policy was in force would not be covered.
- Claims-made coverage is the other type of professional liability policy. For coverage to be triggered, the alleged malpractice or incident must happen while the policy is in force, and, the claim must also be reported or made while the policy is in force. Once the policy period has expired, there is no coverage (unless an extended reporting period (ERP) or "tail" endorsement is purchased) even though the alleged wrong-doing may have happened while the coverage was in force. With a claims-made policy, if you retire, stop practicing, or change carriers, you need to maintain continuous coverage in place. You can do this in one of two ways -- either purchase an ERP, also known as a “tail,” or you can purchase prior acts coverage. The ERP is a one-time purchase that extends the time to report claims beyond the last day your policy was in force. It does not extend coverage into the future, just the time to report incidents. With an unlimited ERP the time to report claims is extended indefinitely into the future. Limited ERPs are also available for shorter periods of time. After this time elapses, there is no coverage for any future claims. You must purchase an ERP within 60 days of terminating a claims-made policy. The cost for an unlimited ERP is roughly 2x the last annual premium. Under certain circumstances some companies, like The Trust, provide free ERPs (e.g., death, retirement or disability).
- The other option for continuous coverage with a claims-made policy is to purchase prior acts coverage or a “nose.” You purchase this from your new carrier when switching insurance companies. The new carrier assumes liability for any new claims that are made from your previous years of practice, reaching back to your prior carrier’s retroactive date, or the earliest date of your claims-made coverage. A note of caution here -- not all policies are alike. Review the new carrier’s coverage carefully. If the new carrier excludes certain types of claims, such as sexual violations or those arising out of prison work, then there is no coverage should such a claim be made even if these were covered under your previous policy and you paid for such coverage. There is no separate premium for this. The total premium with the new carrier is based on your retroactive date.
There is one final thing you should be aware of. When insurance claims are denied, it is usually because of a policy exclusion (sometimes this can be a pre-existing issue) or because the insured neglects to report a potential claim during the required reporting period. This is particularly the case with government or Board investigations. For example, a licensing board may notify an insured that a complaint has been filed but that its validity has yet to be established. Even this initial process could take time, so rather than wait for the Board to proceed one way or another, the insured should notify the insurance company within the required reporting period. The best practice is to report all incidents as soon as possible. Our experience with Board investigations is that the sooner an attorney is hired to defend you, the better. It is both less likely to be as costly and less likely to result in any serious consequences to you than it would be if you tried to handle the matter on your own or there were delays in responding.
This information is necessarily brief and is presented as an introduction to professional liability insurance. It is based on the experience of The Trust, Trust Risk Management Services (TRMS), and content from The Trust’s book Assessing and Managing Risk in Psychological Practice: An Individualized Approach (Second Edition). You should always consult the professional liability policy you plan to purchase and contact the program issuing and managing the policy with any questions.
You can learn more about professional liability insurance and managing risk in psychology practice by visiting The Trust's web site, www.trustinsurance.com.