Professional Liability Insurance
Professional Liability insurance (also called Malpractice or Errors and Omissions 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 Service), and has competent and convenient customer service. Ask colleagues and mentors or professional associations what company they would recommend based on their experiences when needing services. 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 malpractice 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).
Malpractice policies generally exclude coverage for certain events such as claims for unlicensed practice; dishonest, criminal, fraudulent, or intentional acts; and business relationships with current or former clients. 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. 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, he or she 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 or “tail” coverage is generally not provided to departing employees. Again, it is wise to know the coverage and limitations of an employer's malpractice insurance policy.
- Choose the coverage amount that matches your level of risk. Today a majority of 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. Make sure the policy includes coverage for licensing board complaints and Medicare/Medicaid investigations.
- Choose the type of coverage best suited for your situation. Malpractice policies are offered in two forms: occurrence-based and claims made. Occurrence-based coverage is usually more expensive than claims-made coverage, but it is generally easier to understand and administer. Claims-made coverage costs less, especially in early years, but the coverage issues are more complicated. Both coverages are renewed on an annual basis.
- An occurrence policy covers alleged misconduct that occurred during a particular 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 coverage 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.
- A claims-made policy covers any alleged misconduct that occurred during the policy period if the claim is reported during the time the policy is in force. Put differently, for a claim to be covered under a claims-made policy, the insured must have been covered under the same policy both when the covered incident occurred and when the claim is filed later. All claims-made policies have a “retro date” or the date the policy was first issued. The policy will not cover any claims alleging malpractice that occurred prior to the retro date. Psychologists who terminate a claims-made policy for any reason should purchase “tail” coverage (sometimes referred to as an extended reporting period – or ERP – coverage) to extend and enable defending claims beyond the termination date.
When insurance claims are denied, it is usually because of preexisting policy exclusions 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, and rather than wait for the board to proceed one way or another, the insured should notify the policy administrator within the required reporting period (usually 60 days).
This information is necessarily brief and is presented as an introduction to Professional Liability Insurance. It is based on the experience of The American Insurance Trust (The Trust) and 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 malpractice 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.