Who Pays the Premium?
If the physician will need tail coverage, the next critical question is, Who pays for such coverage? Even though tail coverage comes into effect when a physician leaves an employer, tail coverage should be addressed before the physician informs the employer of their departure; an even better approach would be while the employment agreement is negotiated. Payment of tail coverage should be defined in the physician’s employment agreement.
In terms of payment for the coverage, there are several options. First, the cost of tail coverage can be attributed 100% to either physician or employer. In specialties for which recruitment of new physicians is challenging (i.e. HM), employers are more likely to pay a substantial portion, if not all, of the cost as a benefit or inducement.
Second, the physician can connect the payment of tail coverage to the manner in which employment is terminated. For example, if the physician terminates the agreement for cause or if the employer terminates the physician’s employment without cause, the employer could be required to pay for the tail insurance. Alternatively, if the physician terminates the agreement without cause or if the employer terminates the physician’s employment with cause, the physician could be required to pay for the tail coverage. Frequently, physician employment agreements require physicians to pay for tail coverage if the physician violates a restrictive covenant (e.g. non-competition).
A third option is to split the cost of tail insurance between the former employer and the physician based on a percentage, or to include a vesting schedule, for example, such that the former employer pays one-third of the coverage if employment ends in the second year, two-thirds of the coverage if employment ends in the third year, and 100% of the coverage if employment ends in the fourth year or later.
Whatever arrangement the parties agree upon should be included in the physician’s employment agreement in order to prevent an expensive surprise.
Review Your Policy
Now that you have an understanding of claims-made coverage, occurrence-based coverage and tail insurance, it’s time to review your insurance policy. When reviewing your current policy, look for answers to the following important questions:
- Is your policy claims-made or occurrence-based?
- Does your insurance policy only cover professional negligence claims? Does your policy also cover claims of unprofessional conduct reported to state medical licensing boards? Does your policy also cover medical staff bylaw disputes and state licensing matters?
- How is loss defined? “Pure loss” is coverage for the amount awarded to the plaintiff; “ultimate net loss” covers what pure loss covers, plus attorneys’ fees and costs.
- What procedures do you need to follow in order to properly notify the insurance carrier of a claim? Are you precluded from full coverage if you fail to properly report?
- What does the “duty to defend” provision cover? Will you be reimbursed for lost wages for your time in court? What services will be provided as part of your defense?
- What does the “consent to settle” provision say? If a settlement is negotiated between the plaintiff (patient) and the insurance company and the physician does not consent to the settlement, is the physician responsible for the ongoing defense costs and the amount of any verdict in excess of the recommended settlement amount?
It is important to both understand your insurance policy and what your employment agreement says about the policy. If you will be responsible for purchasing a tail policy at the end of your current employment, you should be well aware—and financially prepared—for this post-employment responsibility. Make sure your tail is not left exposed.