Research Needed in Buying Liability Insurance
Law Feature - September 2006
The crowd at the Physicians Insurers Association of America's (PIAA) annual meeting in Montreal listened intently as Michael Makaretz, MD, a Maine otolaryngologist, shared his story. Dr. Makaretz was sued while practicing in Virginia in1999. His liability carrier, Doctors' Insurance Reciprocal (DIR), went belly up in 2003 and was placed in receivership just before his case went to trial. As a result, he was forced to pay for his defense himself. If he lost, most of his current and potential assets would be at risk. He stood to lose almost everything.
"Here I was in the middle of a suit with no insurance coverage whatsoever. It appears the reason DIR went down was they did not have the assets to cover their obligations," he said.
Dr. Makaretz says there was no reason to question DIR's dependability at the time because the company was a major insurer in the area and had performed well for other physicians. He was wrong.
But his case had a happy ending. It went to trial in 2004, and the jury ruled unanimously in his favor. Although the plaintiff appealed, the lawsuit was dismissed.
"It took more than five years for everything to finally be over, and my bill was more than $200,000. If I had lost the case, I probably would have had to declare bankruptcy. Honestly, I wonder if I would have continued to practice if I had lost. I still don't have an answer for that question."
Since Proposition 12 was passed in 2003, all major Texas liability carriers have cut their rates, most by double digits. Texas Alliance for Patient Access Director Jon Opelt says 23 new carriers have entered the market, and physicians now can shop competitively for their policies.
"Texas is a changed environment. A few years ago, physicians were trying to find coverage at any price," he said. "They reluctantly took what they could get. Now the shoe is on the other foot; it's a buyer's market. Physicians have companies soliciting them for business, and it's a good time for them to compare and be sure they get the best policy for the best price. But even in a healthy environment, there is still risk if physicians are not careful in choosing who covers them."
Mr. Opelt points out that while most insurers are regulated by the Texas Department of Insurance (TDI), some are not. TDI spokesperson Ben Gonzalez says an increasing number of unauthorized insurance plans and operators are seeking to take advantage of physicians and other insurance purchasers.
The TDI Web site provides access to ratings on insurance companies' financial status and other information physicians can use in selecting a liability carrier. (See " Insurance Help on the Web .")
"The advice we're giving physicians is the same advice we give to all consumers," said Mr. Gonzalez. "Be diligent. Know what you're buying and its limits. A price difference between companies may also mean the actual coverage is different. The consumer information line can help physicians know their options. Although TDI cannot recommend companies, we can tell physicians what to look for in an insurer and what to consider."
For example, TDI advises physicians that liability policies cannot be canceled by an insurer after 90 days from the effective date of the policy; that at least 90 days notice of nonrenewal or a premium increase, including written reasons for such action, must be given; and that there cannot be a surcharge for claims unless the claims have been paid. In addition, TDI says, "policies sold by licensed insurers may not contain restrictive provisions that are not in accordance with public policy, and claims-made policies must include 'tail' or run-off coverage."
If a would-be policy seller doesn't meet those requirements, find another company.
Dallas internist Howard Parness, MD, recalls when only the Texas Medical Liability Insurance Underwriting Association (known as the Texas JUA) would insure his practice. Insured by JUA for several years, Dr. Parness says passage of Proposition 12 three years ago this month made it significantly easier for physicians to obtain liability insurance at better rates. He is now insured by the Texas Medical Liability Trust (TMLT), one of several insurers that recently bid for his business.
"Before Prop 12, there were fewer and fewer insurers to apply to. Now there are more choices, and insurers are very anxious for physicians' business. When it was time for me to renew, I chose TMLT because of its affiliation with TMA. I would advise my colleagues to carefully explore what's out there. It's a very different market than five years ago when I was limited to only one choice."
Dr. Makaretz learned from his experience with DIR. He now says the bottom line is track record and financial stability, not price, when it comes to selecting an insurer.
"Check to make sure the insurer has adequate reserves and a proven reputation. When a new physician enters a practice, that's an opportunity for the practice to reassess its insurance coverage. Is everyone comfortable with the company? Have we all done our homework about the insurer? Is the coverage solid?"
Erin Prathercan be reached at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email at Erin Prather.
Insurance Help on the Web
You can use either the Texas Medical Association or Texas Department of Insurance (TDI) Web site to find authorized liability insurance carriers in Texas and check on a company's ratings and recent financial history.
For the TMA Web site, log on to www.texmed.org/Template.aspx?id=2832. The site has a link to the TDI Web site and the Internet addresses of companies doing business in Texas. All of the companies listed contribute to the Texas Property and Casualty Insurance Guaranty Association unless noted otherwise. The guaranty association protects policyholders for up to $300,000 per claim if the carrier becomes insolvent.
TDI's Medical Liability Insurance Shopping Guide can be accessed by logging on to www.tdi.state.tx.us. Once there, you'll find a list of companies authorized to sell policies in Texas. Click on Insurer Search and you'll be able to check a company's rating for financial strength and stability from A.M. Best, Moody's Investor Service, and others. Some of these companies charge for their services.
Additionally, you can call the TDI consumer information phone line at (800) 252-3439 for more information about insurers.
Back to article
What You Need to Know
If you change insurers, be sure to take measures to prevent coverage gaps. Either purchase run-off ("tail") coverage from the old carrier or buy prior acts ("nose") coverage from the new one. Prior acts or retroactive coverage is accomplished by setting the retroactive date back to the original effective date of your first policy. It's also called retroactive coverage.
Tips on Renewing Coverage
- Start the renewal process early. Six months in advance is not too soon to assemble information.
- See if you can get a renewal date other than Jan. 1 or July 1. Medical, nursing, and other health care schools crowd these dates with graduates. Insurers are flooded with renewals on these dates.
- If you use an agent, respond quickly to requests for information. Be sure to document all communication with your agent. Especially note key items such as policy limits, deductibles, requested effective date, and prior acts coverage.
- If you are a large or medium-size insured, get your loss runs up to date. Ask to get old, inactive claims closed in a no-payment status. Be prepared to address claims history.
- Update and document all patient safety and loss control measures, including employee training accomplished. Be prepared to show why your practice is, and will continue to be, a good risk.
- Consider assuming more risk in the form of higher deductibles or lower policy limits. However, check first with your hospitals and health plans for their credentialing requirements.
- Be proactive. Give your agent or insurance marketer loss runs, coverage choices, and risk management efforts at least four months in advance. Remember, Texas statutes require an insurer to give 90 days notice of nonrenewal, so underwriters need this information well in advance.
- Prepare your office or facility budget to allow for premium increases.
When Nearing Retirement or Leaving Practice
Be certain you have tail coverage with a sound insurer. Plan in advance, because the coverage is expensive and may cost as much as one-and-a-half to three times an annual premium.
Most insurers have a plan that allows an insured to receive free run-off coverage in exchange for continuous coverage for a stated period (usually five or more years) when retiring and ceasing practice permanently.
There may also be arrangements that can be made if a physician is called to active duty in the armed forces. Professional armed forces personnel are now protected by the Service Members Civil Relief Act of 2003. Check with your insurer to see if these options are available.
Source: Texas Department of Insurance, www.tdi.state.tx.us
What TAPA Wants
The Texas Alliance for Patient Access (TAPA) is not finished reforming the state's professional liability system. TAPA will push for additional changes in the next session of the legislature.
Possible remedies include:
- Requiring expert witnesses to obtain a license to testify in a case and be subject to Texas Medical Board discipline if they testify fraudulently;
- Allowing future damages to be paid in installments rather than a lump sum; and
- Allowing jurors to hear if a claimant has already collected money from a third party such as health insurance, workers' compensation, or Medicare for the damages they are seeking.
The Texas Medical Association is a charter member of TAPA. More information on the TAPA legislative agenda is at http://www.tapa.info/.
September 2006 Texas Medicine Contents
Texas Medicine Main Page