How Physician Practices Should Handle Malpractice Tail

By Daniel M. Bernick, JD, MBA 

For years and years, malpractice “tail” has been a thorn in the side of medical practices and their physician employees.

To review, there are two basic types of malpractice insurance: occurrence and claims-made.  Tail is never an issue with occurrence insurance, because there is no tail to be purchased.  Occurrence insurance is like the insurance that you carry on your house or auto: if you had the insurance when the event/accident occurred, you are covered.  End of story.

Not so with claims-made coverage.  With claims-made, you are covered only if (a) you had the insurance when the event/accident occurred, AND (b) you also have the coverage when the claim is brought.  If between the time you saw the patient, and the time you are sued, you allow the policy to lapse, or you change carriers, and you do not buy “tail” coverage, it’s as if you never had any insurance at all.

On the other hand, if you do buy the tail, the claims made policy effectively converts into an occurrence policy.  Once you buy the tail, you have coverage, regardless of how long it takes for the claim/lawsuit to surface.

Despite its awkward structure, claims-made malpractice insurance is widespread.  Sometimes it is the only type of coverage available.  Other times, occurrence coverage is available, but it always costs more than claims-made insurance in the first 3-5 years.  A practice may be unwilling to pay the extra cost for the occurrence policy, but, many medical practices still choose the claims-made insurance.  I don’t have national statistics, but probably 85% of associate contracts that I see indicate that the coverage offered is claims-made, not occurrence.

Years ago, a medical practice that hired an associate physician would pay 100% of the cost of the doctor’s malpractice coverage.  If the coverage was claims-made, then the employing practice would pay 100% of the doctor’s tail, since it was essentially part of the “coverage.”  Over the years though, employers became less and less willing to cover the associate’s tail.    Many employers began to require the associate to pay one-half of the cost of the tail.  Now, the trend is to require the associate to pay all (100%) of the tail.

The question of who pays for the tail has some real financial sting.  The cost of tail can be 100% or 150% or more of the annual “mature” (fully phased-in) premium.  For some specialties, in particularly “litigation happy” parts of the U.S., the cost can be huge.

From the employer’s perspective, the ideal outcome is for the associate to pay 100% of the tail.  This can be specified by contract.  However, there are some practical difficulties.

First, even if the associate is required, by contract, to buy the tail, he may in fact fail to follow through.  The opportunity to purchase tail is not available until the policy term has expired, or been terminated early, such as when the associate leaves the employer’s practice.  You can’t buy the tail before the policy coverage has ended. (Once it ends, the doctor generally has up to 60 days to buy the tail.)

So effectively the tail will not be eligible for purchase until the associate has left your practice.  You will need to “chase him down,” potentially, to carry through with his promise to buy the tail.

Some of you may be asking: why does the employer care?  After all, this is the associate’s coverage.  If the associate is willing to risk “going bare,” how does that hurt the employer?

The answer is that the employer is automatically held responsible for the associate’s acts and omissions under the legal doctrine of respondeat superior (vicarious liability).  You can be sure that the plaintiff’s legal counsel will not be content to name only the associate in a malpractice suit.  He will also name the employer, under the doctrine of respondeat superior, to reach the “deep pocket.”  The employer is fully in the “line of fire.”

Even if the tail is purchased, the coverage is still personal to the doctor.  It does not cover the employer.  But at least the plaintiff’s attorney will be more inclined to take the “easy money” and settle for the insurance limits, rather than pursue the employer.  That is why it is in the interest of the employer to make sure that the doctor’s tail is acquired.

Note that the departing associate does not need to purchase tail, to be covered, if he continues the policy in his future practice.  For instance, if the associate is terminated from a medical practice in Pennsylvania (“Practice #1”), he can probably continue his policy for his service with another practice also in Pennsylvania (“Practice #2), since the carrier will be licensed to write policies anywhere in the state.  (Some carriers do business nationally, increasing the odds that the policy can be continued elsewhere.) As long as the policy is continued, the insurance coverage will apply to prior acts and omissions, back to the date when the associate first started practice with Practice #1 (the “retroactive date.”)

The problem is this: the associate may continue the coverage, at first, but then later (months or years) decide to change carriers.  And then the tail problem will again raise its ugly head.  If no tail is purchased, at that future date, then the coverage vanishes, including the coverage for his employment in Practice #1.

The associate may promise Practice #1 that he will never allow the policy to expire, without buying tail, but if Practice #1 allows the associate to walk out the door, without buying the tail, it really will never know what he does, in the months or years ahead.

The contractual “fix” to this problem is typically to specify that: (a) the associate must buy the tail to Practice #1, immediately following termination; and (b) if the associate does not prove that he has done so, the employer may step in, buy the tail, and seek reimbursement from the associate for the cost, together with attorney’s fees as necessary.

Of course, nothing is as easy as expected.

First, the associate and Practice #1 may be on bad terms, so communication about what the associate is doing about his tail, post-termination, may not be readily available.

Second, even if Practice #1 wants to buy the tail, it may not have the authority to do so.  Remember the policy is personal to the doctor.  Therefore, if the associate chooses to continue the coverage, the carrier is likely not going to take a directive from Practice #1 to terminate the policy, just so Practice #1 can buy the tail.

Third, if the Practice does buy the tail, there may be practical problems recouping the cost from the associate, who as noted has departed, and may even have left the area.

The best solution is actually a very simple one: maintain corporate malpractice coverage.  This is separate and apart from the doctor’s individual policy.  The corporate coverage is typically available from the same carrier that writes the policies for the individual doctors in your practice.  (This is a good reason to insist that all doctors in your practice get their insurance from the same carrier, so that you can buy a corporate policy.)

If you have the corporate policy, the practice corporation will generally be protected, regardless of whether the doctor buys a tail.  An individual doctor’s tail purchase becomes a matter of indifference to the corporation.  The tail issue goes away.

There is only one “catch.”  The corporate policy isn’t free.  Oftentimes the charge may be 10% of the total premiums paid on the individual policies for doctors in the group.

For a large group, or maybe even not so large a group, the 10% can be significant money.  But it may well be worthwhile.  It saves the practice the headache of worrying about individual doctor tails.  It provides coverage to fund any payment or malpractice court judgment or settlement.  And it gives the practice the right to a defense attorney’s services, from the carrier, if the corporation is sued.   Without the corporate coverage, the practice will have to hope that the carrier can settle the case for the insurance limits on the doctor’s policy.  The carrier has no obligation to defend the practice corporation, in the absence of a corporate policy.

So the moral of the story is this: consider corporate coverage.  And if it is too expensive, carefully prepare the associate’s contract, to ensure that the tail will, in fact, be purchased, and that you (the practice) will be reimbursed.

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Daniel M. Bernick,, Esq., M.B.A. is an Attorney, Consultant, and Principal of The Health Care Group and Health Care Law Associates, P.C. in Plymouth Meeting, Pennsylvania