Tail insurance: Who pays and when do you need it?

Contract Language. By Steven M. Harris, AMNews contributor. March 5, 2007.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

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Now is the time to dust off those physician employment agreements and professional liability insurance policies, or if you are about to finish residency, now is the time to start thinking about how to negotiate an effective tail insurance provision. This means paying special attention to whether your professional liability insurance policy provides for claims-made or occurrence-based coverage, and if it's the former, who is responsible for buying tail coverage.

Tail insurance issues arise whenever a physician leaves a practice, whether due to a change of job, change of location, retirement, separation, or the buy-out of a physician-shareholder from a practice. Many practices are now subtracting the cost of tail coverage from separation pay, deferred compensation and/or the redemption price of an ownership interest to which a shareholder would be entitled when departing a practice.

Insurance coverage is seamless when a physician leaves a practice covered by occurrence-based professional liability insurance. Professional negligence will be covered by the insurance carrier at the time of the alleged event, even if the physician has a different carrier at the time the claim is filed.

Insurance coverage may not be seamless if a physician leaves a practice covered by claims-made professional liability insurance. Instead, tail or similar coverage is required. Claims-made coverage protects a physician for professional negligence as long as a two-part test is met: first, the claim must have arisen while the physician was practicing medicine on behalf of the practice; and second, the physician must be notified that the claim is pending while the physician is still engaged on behalf of that practice. If either of these tests is not met, the current claims-made insurance policy will not provide coverage.