Simply put, tail coverage is malpractice insurance that extends the coverage after a claims-made policy has ended. Also known as an extended reporting endorsement.
Most malpractice insurance policies are issued on a claims-made basis. With claims-made insurance, the policy will respond to claims made while the policy is in force, provided the services that caused the claim were rendered after the policy retroactive date. Therefore, when a claims-made malpractice insurance policy is canceled or expires, no further coverage is in place unless (1) a new policy is issued and the insurance company agrees to assume your retroactive date, or (2) you can secure tail coverage.
How Do You Obtain Tail Coverage in 2021?
There are essentially four ways a healthcare provider can secure tail coverage.
- Death – This is fairly straightforward. If you die, you (your estate) will receive free coverage from the incumbent carrier.
- Disability – If you become disabled, you will receive free coverage from the insurance company. In order to qualify for free disability tail coverage, you must be permanently disabled and completely cease practicing medicine.
- Retirement – If you retire and meet certain requirements set forth by the insurance company, you will receive free retirement tail coverage. These retirement tail rules vary by the insurance company. First, there is usually an age requirement – for example, the physician must be at least age 55. Second, there is a time requirement – for example, the physician must be insured with that particular insurance company for five full years immediately before retirement. If both the age and time requirement are met, free retirement coverage will be granted.
As market conditions change, malpractice insurance companies will amend their retirement tail coverage rules as well. For example, 20 years ago when the market was “hard” a common retirement tail rule was “age 55 and 5-year time requirement.” As the market softened, carriers lowered or even eliminated the age requirement and lowered the time requirement as well. In 2021, it is not unusual for a physician to qualify for free retirement at any age and with only one year of coverage with the incumbent carrier. - Purchase Coverage – In 2021, tail coverage typically costs 150%-250% of the physician’s current premium.
When Will You Be Required to Purchase Tail Coverage?
Tail coverage is expensive so if at all possible, this is an expense you want to avoid. Ideally, your malpractice insurance program will be managed each year in such a way that you will never need to purchase tail coverage – instead, it will be provided for you at retirement for free. However, in 2021 there are times when purchasing tail coverage cannot be avoided.
Over the last 10 years or so, the delivery of healthcare has changed tremendously and often times there is no longer a clear line between a provider and a facility. For example, in a recent survey, only 31% of physicians nationwide identified as independent. Therefore, 69% of all physicians are employed by a hospital or a similar healthcare system. As independent physicians explore the idea of becoming employed, it is imperative they understand the details of their malpractice insurance, specifically, tail coverage.
Here are several situations where you may need to purchase tail coverage in 2021:
- Example 1 – You become employed by a hospital and the hospital won’t cover your prior acts. Then you must purchase it or you will have a gap in coverage.
- Example 2 – You change employers and the new employer does not want their malpractice carrier to cover your prior acts. Then you must purchase tail coverage or you will have a gap in coverage.
- Example 3 – You choose to retire and do not yet qualify for free retirement coverage from your insurance company.
- Example 4 – You previously received your coverage from an insurance company that has become insolvent. You are now without any malpractice insurance coverage for that time period covered by the insolvent carrier’s tail unless you purchase “stand-alone replacement tail coverage.”
What is Stand-Alone Tail Coverage?
The vast majority of the time, tail coverage is provided by the incumbent insurance company. However, there are a few insurance companies that will write a “stand-alone tail.” Stand-Alone tail is a separate tail policy written by another insurance company that didn’t write the original claims-made policy (i.e., they were not the incumbent carrier).
Why would someone need to replace a tail?
If you received retirement tail coverage and the insurance company that issued the tail goes bankrupt, your retirement coverage is now void and you are without coverage. Or, if you purchased tail before becoming employed by the hospital, and the insurance company that provided your tail is being liquidated, it is now worthless and you are bare. In both cases, you will have uninsured exposure unless you purchase Replacement Tail Coverage.
The single most important malpractice insurance decision a physician may ever make is the quality of his/her tail coverage.
Simply put, the insurance company must have the financial strength to be around when it’s time to pay your potential tail claims in the future.
The best tail coverage will be issued by carriers rated “A” (excellent) or higher by A.M. Best and provide an unlimited reporting period for future claims.
Does your tail coverage meet these standards? If not, give us a call and we can help: 800-807-8878