Vasilios "Bill" Kalogredis.

You've just received a call from a physician or dentist asking you to review their new employment contract. Or, maybe you've received a call from a doctor who is hoping to start the "wind down" process and retire in the near future. What should they know when it comes to medical malpractice insurance, and how will it impact their decision in taking or leaving a job?

For doctors in private practice in particular, decisions about malpractice insurance may be among the most important they will make.

Medical malpractice insurance, also called medical professional liability insurance, is a type of errors and omissions (E&O) coverage. It protects physicians, dentists, nurses, physical therapists and other health care professionals against claims alleging their negligent acts caused injury to patients. Medical malpractice insurance comes in two basic forms: occurrence or claims-made. Surprisingly, many doctors do not know what kind of malpractice insurance they have.

Occurrence v. Claims-Made Policies

An occurrence-based policy provides insurance against any incident that occurs during the term of the policy, regardless of when the claim is made. As long as the event occurs during the coverage period, your client will be covered. Thus, if your client has an occurrence-type policy in effect for the calendar year 2017, and a patient files a claim in 2020 for an incident that happened during 2017, the policy covers your client for that claim, even if he no longer has insurance with that carrier. This type of policy is usually considered the "better" option because it provides "lifetime coverage" but can come with a heftier price tag for employers.

A claims-made policy provides coverage only for incidents that occurred and were reported while your client was insured by that carrier. In other words, both the incident and the filing of the claim must happen while the policy is in effect. Thus, coverage for malpractice claims completely stops when the policy ends. Claims-made policies are much more common because they are less expensive "up front" than occurrence policies.

If your client leaves an employer for any reason, and therefore drops a claims-made policy, he is not covered for any suits filed later unless they obtain and pay for what is known as "tail coverage," sometimes called an extended reporting endorsement. Tail coverage can be expensive—often three times the amount of an annual premium—but it's essential to be insured for any claims that could arise later.

Therefore, it is imperative that your client understand who will be responsible for tail coverage—the doctor or the employer—before starting a new position and that such responsibility is clearly specified in the employment contract.

Hundreds of medical residents and fellows of the now-defunct Hahnemann University Hospital in Philadelphia almost had to learn this lesson the hard way after the hospital closed last summer because of severe financial problems. On top of scrambling to find new programs willing to accept them to finish their training, and bearing the cost to move all over the country, these young doctors were faced with the prospect of having to buy tail coverage for their training years at Hahnemann. This caused many residents and fellows to believe that all guarantees had been yanked out from them in a time when they do not earn enough money to cover these costs.

Fortunately for these young doctors, including new attending physicians, the U.S. Bankruptcy Court judge signed an order at the beginning of last month allowing the owners of Hahnemann to use the hospital's assets to purchase tail insurance for residents and attending physicians who otherwise would have faced a loss in coverage. For most doctors, this kind of bailout is not a possibility when it comes to tail coverage.

Depending on the location and nature of a medical practice, medical malpractice insurance can take several forms, including: an individual or group policy purchased from a traditional private insurer; an individual or group policy obtained through a medical risk retention group (RRG), a mutual organization of medical professionals organized to provide liability insurance; and coverage provided as part of a policy held by an employer, such as a hospital.

What's Covered … and What's Not

One should carefully read a particular malpractice insurance policy's terms to be sure what it covers.

Medical malpractice insurance covers a range of expenses associated with defending and settling malpractice suits. It also pays damages if your client is found liable. Examples of commonly covered costs include attorney fees and court costs, arbitration costs, settlement costs, punitive and compensatory damages, and medical damages.

There are also many common exclusions in malpractice policies that your client should be aware of, including:

• Acts committed while you are under the influence of drugs or alcohol
• Sexual misconduct
• Dishonest, fraudulent, criminal or illegal acts
• Injuries arising out of the use of autos, including loading or unloading of patients
• Claims arising out of any business (such as a clinic or nursing home) you own or manage that's not named on the policy
• Claims arising out of certain types of procedures (such as the administration of general anesthesia)
• Claims arising from your unauthorized disclosure of patients' medical records

Medical malpractice insurance is one of the most important, and also one of the most nuanced, parts of taking or deciding to leave a job as a doctor. It can be difficult for a doctor to ask for tail coverage from an employer because it may seem as if the doctor is already planning to leave the practice. Yet common sense dictates that no one can be absolutely sure that he or she will stay in the same job for the full duration of a career—even the employer. The best way to ensure that medical malpractice tail coverage is part of an employment contract is to negotiate for it when starting a job. Once a doctor begins an employed position, there is no incentive for an employer to add tail coverage to the physician's contract because this can give an employed doctor a way out while costing the employer a large sum of money.

—Rachel E. Lusk, an associate at Lamb McErlane who focuses on health law and health care litigation, assisted with preparing this article.