When it comes to malpractice insurance, you have two coverage options: Occurrence or Claims-made. While there is no difference in the kind of injury or damages covered under these two coverage options, they differ in how and when the coverage responds.
An Occurrence policy protects you from any covered incident that “occurs” during the policy period, regardless of when the claim is reported. This Coverage protects you from the day you purchase the policy and beyond, even if you retire, take a leave of absence, or cancel the policy. In effect, an Occurrence policy offers permanent coverage for incidents that occur during the policy period.
Occurrence limits “restore” each year so that claims paid for incidents arising from one policy year do not deplete limits available to cover claims from other years. Each year an Occurrence policy is in force represents a separate set of limits. Ten years of coverage under a $1M/$3M Occurrence policy could provide the insured protection for up to $30MM in claims (ten year combined annual aggregate limit). You do not need to purchase "Tail Coverage" with this type of policy.
Claims-Made policies provide coverage against claims for alleged incidents that both occur and are reported on or after the retroactive date and before the policy terminates. In simple terms, Claims-made coverage only protects you during the year you have the policy. That coverage only continues year after year as long as the insured continues to pay premiums for the initial policy and any subsequent renewals. Each succeeding year the policy is continuously renewed, the “coverage period” is extended. Once premiums stop the coverage stops. Claims made to the insurance company after the coverage period ends will not be covered, even if the alleged incident occurred while the policy was in force.
Claims-made limits DO NOT “restore” each year the way Occurrence Coverage limits do. The policy limits in place when the policy is purchased remain the single set of limits available to protect the insured from all claims that could arise from care provided during the years the policy is continuously in force. The insured does not have a separate set of limits for each year the policy is in force. A Claims-made policy will cover claims after the coverage period ONLY if the insured purchases extended reporting period or “Tail Coverage."
Tail Coverage is an optional (but highly recommended) endorsement/policy which allows you to report claims for alleged injuries that occur while your claims-made policy was in force but after it has ended. Usually, you need to purchase a tail during a leave of absence, starting new employment where your prior employer paid for coverage, moving from a claims-made policy to an occurrence policy, etc.
Because both the incident and the claim have to be filed during the coverage period, the Claims-made insurer has little risk of loss the FIRST year a new policy is in force. That is why the first year premium for Claims-made coverage is lower. Each year the policy continuously renews, the coverage period expands, and the insurance company’s exposure to loss increases. For the first four years a Claims-made policy is in force, the premiums increase incrementally to reflect this increased risk. This process is known as the “Claims-made step factor.” Usually by the fifth year of Claims-made coverage, the risk of loss levels off and the “step factor” reaches a “mature” Claims-made rate. “Mature” Claims-made rates are typically very close to normal rates for Occurrence Coverage.
This option offers coverage for your corporation or professional entity. Most carriers offer the option of sharing the limits of your personal malpractice insurance policy with your entity or purchasing separate limits for an additional premium.
It’s important to know that, just like you, your practice can be named in a malpractice lawsuit. If you plan on owning a practice, you should consider two important entity coverage options: separate limits or shared limits.
If you own all or a portion of your practice, you may qualify for an entity malpractice insurance policy with separate limits. This allows defense costs and indemnity payments to be paid on behalf of your practice — separately from your individual policy limits.
If you have a solo corporation and have no employed or contracted dentists, then you may choose to share your individual policy limits with your practice. This means defense costs and indemnity payments will be paid on behalf of both you and your practice under one shared set of limits.
While our offices are located in Arizona and California, we are licensed all over the country.
