Angela Alkire, J.D.
Assistant Vice President of Operations
You may know that for coverage to be triggered for claims-made policies, 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. There is no coverage once the policy period ends or coverage is terminated unless an “extended reporting period”, also known as ERP coverage or a “tail, is purchased. With a claims-made policy, it does not matter that the alleged wrong happened while the policy was active—what matters is when the claim is made. Assume Dr. A allegedly makes an overt sexual advance towards Patient B on 1/1/2018, but Patient B does not report the claim until 9/1/2018. The date the claim is reported, 9/1/2018, is the claims-made date and the date that triggers coverage. If Dr. A’s policy expired on 8/18/18 without the purchase of an ERP/tail, the claim would not be covered because Dr. A did not have an active policy or coverage when the claim was made.
With claims-made policies, maintaining continuous coverage is important. This can be accomplished if claims-made policies are regularly renewed without any interruption. With a claims-made policy, if you retire, are no longer practicing or providing any services of a psychological nature, or you decide to change insurance carriers, you need to maintain continuous coverage in the event a claim is filed later. This can be done in a few ways: You can either purchase the extended reporting period endorsement (ERP), also known as a “tail”, or you can purchase prior acts coverage.
Extended Reporting Period (ERP) or Tail
An extended reporting period, also known as ERP coverage or a tail, is a one-time purchase that extends the time to report claims beyond the last date the policy was in force. Note that this extends the time to report claims that arose during the time the policy was in force only-- it does not extend coverage into the future. As such, it will not provide coverage for alleged malpractice which occurs after the policy period ends. Optimally, it would be best to purchase an “unlimited ERP” which extends the right to report claims indefinitely. For example, assume a policy period ends on 9/1/2018. With an unlimited ERP, a claim can be reported any time after this date, and the effect is as if the claim had been reported during the policy period or time the policy was active. An alternative is to purchase a limited ERP (e.g., a 3-year limit), but after the time limit elapses, there is no coverage for any reported claims for the years of practice during which the policy was in force. It is important to know that the decision to buy an ERP must be made within 90 days of the termination of a claims-made policy, and the cost for the one-time purchase of an unlimited ERP is typically 2x the last annual premium. Some companies provide free ERP coverage under certain circumstances such as the insured’s death, retirement, or disability. Know that the conditions that trigger such free coverage vary amongst insurers. Some insurers require you to have been a policyholder for a set period before they will grant a free ERP. Let’s assume you have a claims-made policy and you switch carriers. Let’s also assume you wish to retire within the next two years. Your new carrier offers free ERP coverage when you retire, but only after you have been a policyholder for 5 years. This means you will have to purchase an ERP if you retire before that time. Make sure you know the requirements for a free ERP before you switch carriers; otherwise, it can be costly to you. Know also that if you are retiring or being employed in a capacity that does not require liability coverage, for your protection, you must purchase ERP coverage in the event there is no free ERP coverage provided. Similarly, in the event of your death, the executor of your estate, to protect your estate, must purchase ERP coverage if there is no free “tail” coverage provided.
Prior Acts Coverage
For continuous coverage, there is another option to the ERP or tail. With claims-made policies you can also purchase “prior acts coverage”, also known as “nose coverage.” You can purchase this coverage from the new carrier when switching insurance companies. The new carrier assumes liability for any new claims that are filed from your previous years of practice, going back to your prior carrier’s retroactive date which is the earliest date of claims-made coverage. This choice may be preferable if you wish to switch carriers and continue to practice. If the new carrier agrees to provide prior acts coverage, there is no separate premium; rather, the total premium is based on the retroactive date with your previous carrier. With prior acts coverage in place, the new insurance company covers liability for any newly reported claims based on practice, after the retroactive date. This is where you need to be very careful. Review the new carrier’s coverage thoroughly. 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 types of claims were covered under your previous policy and you paid for such coverage.
As with anything, being an informed insurance consumer can prevent costly financial mistakes. Before you purchase a claims-made policy or before you switch carriers, look closely so that you are making a decision that will give you peace of mind.
Angela C. Alkire has been the AVP of Operations for the American Insurance Trust for the last two years. Prior to that she spent fourteen years as the AVP of Claims for United Educators, overseeing the defense of claims against educational institutions. She also spent twelve years holding various claims management positions with State Farm Insurance Companies. Angela obtained her B.A. in Government and Politics from the University of Maryland, College Park, and her J.D. from The Catholic University of America, Columbus School of Law.