Claims Made vs. Occurrence Malpractice Policies: Exploring Your Options Without Fear
There are two types of malpractice policy that you will encounter as a dentist: Occurrence and Claims-Made. In my experience, both options provide reasonable coverage, and both will respond appropriately to your defense if you have a claim or a lawsuit. The key to choosing the right policy for you is to understand the benefits of each, and the differences between them.
Claims-Made Coverage
Claims-Made coverage gets its name from its design. The policy that responds to your defense is the one that is in force when the claim is made. If you treated Bob Smith on March 1, 2024, and he files a claim against you on February 11, 2027, the policy that is in force on 2/11/27 is the one that will respond to your defense.
Your Claims-Made coverage comes with a “Retroactive Date,” which corresponds to the original inception date of the coverage and stays with you for the life of that policy. This means Claims-Made coverage essentially has one long policy period beginning on the retroactive date and ending when you cancel the policy. As such, any changes you make to your Limits of Liability affect the whole policy.
If your policy starts out with limits of $1,000,000 per incident and $3,000,000 aggregate, but a few years later decide to increase those limits to $3,000,000 per incident and $5,000,000 aggregate, those increased limits go into effect all the way back to your Retroactive Date. Therefore, any claims that arise will be covered by the higher 3 mil/5 mil limits regardless of when the incident occurred or when the claim is filed.
The Retroactive Date also represents the earliest date from which you are covered. Any patient incident that occurred before the Retroactive Date is excluded, even if the claim is filed during the time in which the policy is active.
In addition, when you cancel your policy, you will need to purchase the “Tail Coverage” or your malpractice disappears as though it never existed, from that Retroactive Date through to the cancellation date. Purchasing the Tail keeps this coverage intact. However, the Tail comes with an additional fee at the end of the policy, which can be costly depending upon how long the policy was in force.
That said, Claims-Made coverage is designed so that you should not have to purchase the Tail in many circumstances, including:
- If you cancel your Claims-Made policy but replace it with a new Claims-Made policy that picks up the “Prior Acts” from the old one, you will not have to purchase the Tail.
Prior Acts coverage means that the new policy replaces the old policy, providing coverage back to the retroactive date.
- For example, if you purchased a Claims-Made policy from MedPro that went into effect on October 30, 2019, and then you decide to cancel it on July 8, 2026, you can avoid having to purchase the Tail by replacing MedPro with an EDIC policy that picks up the Prior Acts back to 10/30/19. The new policy takes on the indemnification from the old one.
- If you maintain active Claims-Made coverage for your entire career, most insurance companies have a provision where they can waive the Tail fee when you retire permanently. However, they really do expect you to go sit on a beach somewhere. If you decide to teach, fill in for a colleague at her office occasionally, or consult on matters of patient care, the insurance company would not consider you to be permanently retired.
When Might I Have to Purchase the Tail?
- If your employer controls what type of malpractice policy you carry or requires you to work with a specific insurance company, you may not be in control of when you cancel your policy. This could result in your being forced to cancel your policy and purchase the tail.
- If you have a family emergency and cease practicing temporarily, you may not wish to pay for malpractice during a lengthy unemployment. Since you would be cancelling the policy and not replacing it with a new one, you would have to purchase the tail.
Benefits of Claims-Made Coverage
- The annual premium is much lower (15-30%) than other types of coverage. This offers more financial freedom early in your career, and allows you room to plan and save should you need to purchase the Tail later on.
- Claims-Made policies mature over a period of 4-5 years. They begin with a heavily discounted premium that gradually increases to full price over the maturation period, so Claims-Made coverage is particularly affordable for doctors just entering the workforce.
Claims-Made coverage tends to be favored by practice owners and doctors who expect to work at a few predictable practice locations throughout their career.
Occurrence Coverage
Occurrence coverage is so called because the policy that responds to your defense is the one that was in force when the original incident occurred. This is because an Occurrence policy renews every year, and for each new policy term you receive a new set of limits of liability. You may begin with limits of $1,000,000 per occurrence and $3,000,000 annual aggregate in your first policy term, but decide to increase those limits to $3,000,000 and $5,000,000 in the second policy term. Those limits are “locked-in” to their specific policy term. Therefore, a claim that occurs in year one is defended by the 1 mil/3 mil limits, while a claim that occurs in year two is defended by the 3 mil/5 mil limits.
In addition, because your policy provisions are locked-in to each policy period, there is no Retroactive Date for coverage and therefore no Tail that needs to be purchased on an Occurrence policy. When you cancel your coverage, you can walk away knowing that the coverage is in place permanently, without an additional fee at the end.
On the other hand, because of this design, you are essentially paying for the tail coverage every year as part of your annual premium, therefore Occurrence policies are much more expensive. You pay for the convenience.
Occurrence coverage tends to be favored by doctors who expect to practice-hop throughout their career, as well as providers who have extensive work and family obligations that make it difficult to manage the more-complex Claims-Made coverage. Insurance companies and insurance agencies also tend to favor Occurrence coverage because it allows them to collect more premium upfront, and they appreciate the added convenience it provides to their clients.
Claims-Made vs. Occurrence
The right coverage for you depends on your individual practice, where you are in your career, and what aspirations you have for your future. Navigating your insurance options with your agent, and investing the time to understand your coverage, will be your key to finding the right policy.
By Eric Harper
