Claims-Made VS Claims Occurrence and Beyond

Practical Advice for the Modern Medical Practitioner

In most cases, a medical practitioner or healthcare service business must have valid Professional Indemnity (PI) insurance – also known as Professional Liability Insurance or Medical Malpractice insurance.

Professional indemnity cover will ensure there is adequate fiscal protection in place following a claim of professional negligence for damages, bodily injury or financial losses. Negligence can be both clinical (injury or distress caused by a treatment you have provided) or non-clinical (report writing/medico-legal). Some form of PI protection will either be a legal requirement, a contract requirement or both. In the event of a claim, your insurance will respond and cover both legal expenses and the cost of any compensation awarded to the claimant up to the limit of your indemnity.

This article goes into some detail about the pitfalls of not securing and maintaining the correct cover, the types of policies you might take out, some very common mistakes, and reasons why cover can become invalid retrospectively, all down to technicality.

All regulatory UK bodies require that a registrant actively performing services included and attached within their registrations must be adequately indemnified with PI cover for the work carried out.

This includes:

• General Medical Council (GMC)
• General Dental Council (GDC)
• The Health and Care Professions Council (HCPC
• The Nursing and Midwifery Council (NMC)

However, you are only required to declare you have adequate cover. No one checks that it is indeed adequate until a claim comes in, which, if you are unknowingly underinsured, is problematic. Often, suppliers do not go into enough detail to customers to allow them to make an informed decision when purchasing insurance. As a result, the possibility of exposure increases.

The Problem? Lack of Knowledge and Transparency!

The details of Professional Liability coverage can be a minefield, and there are many ways that a business can be caught out without adequate advice.

One of these issues is vicarious liability. Claims are on the up, and should a practitioner not be around to respond to a claim themselves or not have adequate cover, it can then be the employer of that practitioner that could be held vicariously liable. Healthcare businesses need to ensure they have the right cover for their employees, including run-off cover, should the practice close.

A practitioner may also find themselves uninsured if their PI cover unexpectedly drops off – for instance, they were reliant on a union or governing body to provide their indemnity cover on a discretionary basis. This can also lead to a regulatory body deeming that person in breach of requirements, and this can lead to regulatory action and sanctions on the registration or, at worst, suspension or removal from the register altogether.

Regulatory matters aside; the lack of protection in an ever-increasing litigious society can also lead to personal assets being used to cover legal costs and subsequent court orders for compensation/damages pay-outs, including property assets and liquid assets such as savings being used to foot the bill.

False Claims

Many PI claims occur, and the scrutinised party has not even acted negligently. If the accusation exists and the legal proceedings begin; the defending party is obliged to respond to the claim. Even if innocent, defending against the claim can cost thousands in legal fees.

Therefore, any person offering medical services must be trading with the right PI protection in place. There is no one size fits all rule here, and cover needs to be considered case by case. So now we have established the potential issues for practising without PI in place, let’s explore why the Claims-Made VS Claims Occurrence coverage mechanisms of protection can lead to these issues.

Often, people assume that their insurance policy taken out for a limited time period will cover them at any point that a claim comes in. Unfortunately, there are cases where insurance providers have neglected to make the difference between a claims-made and occurrence policy clear.

What is Occurrence-based cover?

Occurrence-Based cover is typically for general liability insurance to be covered for insured events that happened during the policy period – even if the policy has now ended.

Provided an incident was not known at inception of a policy, that the policy was in force when the incident occurred, and the peril or incident is included in the terms of cover and policy wording; the insurer will remain liable for that incident even if cover lapses and is not maintained.

Due to claims often occurring with a delay and in cases some years after the incident took place; the insurer at the time of the policy period when the incident occurred will be accountable to represent the policyholder, even if the policy is no longer active.

For medical professionals or businesses with occurrence-based Professional Indemnity policies, the benefit is that once you pay your annual insurance premium, the future risk of claims from work carried out in that insurance year will remain protected by the insurer and not the policyholder.

However, many individuals and businesses do not stay with the same PI provider forever. In cases where several claims come in from multiple patients, the claim notification process can become messy where multiple PI providers have covered you throughout the years, and each needs to act against different or even overlapping claims.

For instance, you treated a patient between 2009 and 2018. Two years after you finish treating them, they make a malpractice claim against you for misdiagnosis. With a claims-occurring policy, it can be unclear which insurer is liable for the costs if you switched providers during that time.

It is sometimes the case when someone makes a claim and is successful, it is publicised on social media which may encourage other patients to come forward with the same allegations. Once one person has won their case, it is more likely that they will also succeed as a legal precedent has been set.

Another negative is that it is typical for an occurrence-based PI provider in healthcare to not actually be an insurer or even regulated to the same extent, and their PI cover is discretionary.

Discretionary cover means they have no financial obligation to you and can turn down a claim for any reason – this is not good!

You would not rely on a discretionary home insurer that may or may not cover the rebuilding costs if your home is burnt down. So why trust discretionary cover with a career, vocation, patients, and assets? An insurer has stringent regulations with the Financial Conduct Authority (FCA), and the regulations are there to protect the consumer with many aspects including Treating Customers Fairly (TCF) that an insurer must adhere to. When an occurrence-based PI provider is not a direct insurer, holds reinsurance or cash reserves to service their members, it often leaves many people uninsured when they need it most.

So what is Claims-Made Cover and how is it better for Professional Indemnity?

Unlike discretionary cover, a solid Professional Indemnity policy will come with a tight policy wording which will be made clear to you before you purchase cover.

At the stage of a quote, the parameters are set; this is also known as contract certainty. This provides the policyholder with a particular set of documents to refer to and know they are thoroughly covered provided the information the customer provided was accurate.

This is a big reason why many practitioners and business owners favour insurance on a clams-made basis over indemnity on a discretionary occurrence basis. Many rightly feel the protection is more robust and pro-defence over pro-pay-out in the event of a claim.

When PI cover is purchased online, this is a non-advised policy, and the onus is on the policyholder to ensure cover is 100% fit for purpose. In the niche world of medicine, with the wide spectrum of services offered, it is always better to engage a specialist insurance broker’s services to ensure there are no gaps in the cover.

Despite all of this, a claims-made policy does have a pitfall where cover that was once fit for purpose does not exist anymore. A claims-made policy requires the policy to be in force a) when the work or treatment is carried out, and b) when the claim arises. For this reason, cover cannot be stopped and started and needs to be continuous.

Furthermore, if cover runs for a year, is lapsed or even cancelled within that insurance year and a claim then occurs for work that was carried out while insurance was live. This makes no difference and insurers will not respond to a claim where no cover technically exists. On inception of a policy, let us say 01.01.2021. This will also usually become your ‘retroactive date’ (RD) and provided cover remains in force, and that you continue with a claims-made coverage provision when you change insurance carriers, your new insurer will ‘inherit’ this RD. The previous claims liability will transfer to your new PI insurance provider, so in 10 years a policyholder will still have an RD of 01.01.2021.

A massive plus here is that multiple claims, spanning several years where different insurers covered the policyholder will always be picked up and reported to the current insurers. Old insurers become redundant (unless previous claims were notified in former years). It means the company that covers the existing insurance year will pick up all claims for the policyholder – a caveat to this is that the new insurers always need to ensure the correct RD is applied to the new policy.

Ok – So what happens on retirement or when practice ceases?

In short, when a practitioner or business closes down; run-off cover (an extended reporting endorsement/period) is then engaged. This means that all claims are still picked up from the original retroactive date (RD) throughout the whole time the claims-made PI cover was in force, provided there were no gaps. Unless specifically agreed by a new insurer; the RD will reset to the latest policy start date in the event of a gap.

Run-off cover, also known as tail coverage, means no cover for ongoing work but full cover for all previous claims liability as per the policy wording purchased with the policy.

It is typical for all Malpractice insurers to define what their run-off terms are. Many have a sliding scale of reducing premiums based on a % of the final insurance year, payable by annual instalment year on year until the risk is gone and cover altogether can cease.

Run-off is crucial, but when a policyholder leaves a claims-made insurer, it will return to an occurrence-based provision and continue to practice. The occurrence-based insurer will not agree to cover the exposure for the previous claims-made indemnified years unless specially arranged.

Extended Reporting period, what is this?

Often the costs of run-off cover are a negative for customers. However, some carriers will price a policy where the run-off costs are paid off and absorbed within the regular insurance premiums. Therefore, provided a policyholder pays for the insurance year and provides adequate notice of intentions to cease practice; run-off is covered as standard using an extended reporting period or ERP. Some insurers offer five years as standard, and others offer fifteen years. It varies.

Conclusion

The world of medicine is very specialist. Unlike other professions; there are often go-to trade unions, societies or associations that offer some form of PI cover as part of their membership fees. Often union-based cover is aligned with ‘traditional’ healthcare models in the UK where the practitioner is employed either by the NHS or private sector. In both cases, the employer assumes accountability for the risk of negligence, which means that the union cover’s discretionary and often secondary nature is more than adequate.

Unions, associations and societies are excellent for those maintaining an employed role in medicine but given the volume of practitioners working independently or on a freelance basis or even setting up their own private practice or clinic; many of the occurrence-based union provisions do not pick up the risk here as standard and may not cover the extra work at all. When they agree to cover the extra work, there are often huge charges for the benefit of uplifting cover to accommodate private, freelance or locum work.

It is common for an individual to remain union subscribed on an occurrence-based PI subscription for their primary post. However, if they start carrying out extra work, they should look to a more tailored claims-made policy focussed on covering private works

There are many perks and benefits in purchasing a claims-made professional indemnity insurance package. It offers a more robust rulebook of what is and is not covered; the cover is not discretionary; the cover can be a lot more flexible, and pricing can be more stable.

Using a specialist broker that knows what they are doing, the key is knowing yourself the vital differences in claims-made VS claims occurrence PI cover.

Get this right, and you will avoid many of the taboo and unspoken pitfalls that exist that too many are afraid to talk about.