When a Midwestern internist thought about leaving his group practice, he faced a dilemma: Resign before his employment term was up--which would mean paying $50,000 for tail insurance to protect him from malpractice claims that might be filed after his current policy was terminated--or stay in a job he disliked for the remaining two years of his contract.
He chose the first option, though he found it "frustrating and upsetting" to have to buy the extra insurance, formally known as "extended reporting coverage."
It could have been worse. "There are a lot of doctors, especially in some of the more litigious specialties, who just can't afford this coverage," says John W. Miller II, a principal at Sterling Risk Advisors in Marietta, GA. But the danger of rolling the dice and going bare, he says, is "potential bankruptcy down the road." Ironically, that's less likely to be the result of any actual judgment than of the cost of contesting a claim, which can reach $400,000 or more in defense attorney fees.
Physician owners also face a risk if a doctor they've hired can't--or won't--purchase tail coverage when he leaves. In such cases, the group itself could end up being the plaintiff's deep pockets. "When a physician is hiring other physicians, the employment agreement needs to spell out who has the obligation to purchase the tail and how that mechanism will work," says Philip Reischman, president and CEO of Gallagher Healthcare, in Houston.
In fact, it's in the interest of both parties to spell out as clearly as possible who's responsible for buying what and when. To help you do that, we've looked at the tricky world of tail coverage from each side of the employment desk.
The deal on tail coverage
If you're an employed physician, it's wise not to be contractually obligated to buy tail coverage when you leave. The reason, of course, is the cost. A tail policy can run anywhere from 150 to 300 percent of your existing claims-made premium--a sizeable chunk for any doctor but an especially big bite for ob/gyns, neurosurgeons, and other high-risk specialists.
Many employment agreements won't let you off the hook completely if you leave prematurely, however. In such a case, you may end up paying most or all of the bill, as the Midwestern internist did. "In many contracts, the deal on tail is this: 'If we fire you, we pay. If you fire us, you pay,' " says Sterling Risk Advisors' John Miller.
If you do leave for greener pastures, your least expensive option--assuming your old employment agreement permits it--is to purchase "nose," or "prior acts," coverage from your new carrier. The insurer provides the coverage in the form of a claims-made policy with a retroactive date that's the same as the start date of your old policy. That way, if a claim comes in after the old policy is terminated, you're still protected. Unlike tail coverage, which has a set multiyear term and coverage limits and is paid in one lump sum, nose insurance is renewed and paid annually, making it much more affordable. There are potential pitfalls, though.
If you move to another state and your new carrier doesn't do business in your old state, it's unlikely to offer you nose coverage, since it won't be able to defend you if a prior action were to result in a claim against you. If your new employer contracts with one of the big national firms--The Doctors Company, Medical Protective, or ProAssurance, which do business in most states--you may be in luck. But even such big firms sometimes balk at extending prior acts coverage.
"Let's say you're moving from Cook County, Illinois"--where malpractice insurance rates have historically been among the highest in the country--"to small-town Colorado," says C. John Keane Jr., president of The Keane Insurance Group, in St. Louis. "Even if your new and former groups have the same national carrier, that company is likely to say to you, 'We can't give you insurance for your prior acts because our rates in Colorado, which are one-fifth of what they are in Cook County, won't support such coverage.' "A physician in that situation, adds Keane, would have little choice but to purchase more-expensive tail insurance on his own. If he can't, he risks jeopardizing his new job.
For this reason, doctors changing jobs need to do their homework. If you think you might be saddled with a huge tail bill, talk to your new employer about helping you out--either directly or through some form of financing arrangement--before you sign an agreement and begin loading the moving van. "You're in a weaker negotiating position after the fact," says Miller.
Put it in the contract
Doctors on the other side of the table also need to do their homework. Step One, insurance experts advise, is for practice partners to draft an employment agreement that stipulates who'll buy tail coverage should the new hire leave prior to his full term. Groups that ignore this contractual step, experts caution, may pay the price down the road.
"Where the contract is silent, courts have generally identified the employer as being the provider of the tail, especially when the employee may have signed an agreement without seeking legal counsel," says Paul Frisch, general counsel of the Oregon Medical Association (OMA). To avoid this, Frisch says, groups should always insist that a prospective hire have the employment contract reviewed by an attorney prior to signing it.
The contract itself should be as specific as possible. If the employee is obligated to buy tail coverage under certain conditions, those should be spelled out. Some groups go even further, says Phil Reischman, requiring prematurely departing employees "to reimburse the practice for the cost of purchasing the tail." That way, he says, the practice itself is in control of the process, although he acknowledges that recruiting may be difficult with this provision in place.
Savvy groups also include another item in their agreements--corporate coverage. Without this, an employer has no guarantee that the departing physician will include the group in his tail policy. That can spell big trouble down the road if a claim names both the former employee and his corporate employer, as is typically the case. And even with this provision in place, a group would still be vulnerable if the departing physician tries to ignore or is unable to meet his contractual obligations. (Full article)