Malpractice Insurance:

What is malpractice insurance?

Malpractice insurance is a type of professional liability insurance that is purchased by professionals dealing directly with clients. Such professionals mainly include healthcare providers, lawyers, beauticians, and construction workers. Medical malpractice insurance and legal malpractice insurance are the two types of malpractice insurance.

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What does the policy cover?

Professionals dealing directly with customers are at risk of being sued for wrong advice or negligence. Malpractice insurance covers costs incurred while defending lawsuits resulting from negligence or ignorance and also pays for damages if the insured is held liable. Hence, malpractice insurance is mandatory in some states for medical and legal professionals. 

For example, a medical professional liability insurance is mandatory for health professionals in many states. Investopedia states that medical negligence is the third leading cause of death tolls. Usually, medical negligence cases include oversight during diagnosis, treatment, or post-treatment advice. Therefore, when someone files a medical negligence case, this causes a considerable loss for health professionals.  

As per the Insurance Information Institute, the coverages of medical malpractice insurance are: 

• Legal fees and court charges: Medical malpractice insurance covers fees of the attorney and also the costs of the court. Legal fees are the fees of the lawyer to fight the case.  
• Arbitration costs: If parties opt for an out-of-court settlement, the medical malpractice insurance companies pay for the arbitration costs. For example, if a patient demands a specific sum of money to withdraw the case and settle it out of court, it is arbitration cost. 
• Settlement costs: Settlement costs that the healthcare malpractice insurance would cover include fines and penalties for in-court settlements and the amount to pay for out-of-court settlements. 
• Medical negligence damages: Some health care professionals are liable to pay for damages to the clients as well. Hence, healthcare malpractice insurance includes coverage for damages up to a fixed amount.  

Malpractice insurance is also important for lawyers. Above The Law states that lawyer’s malpractice insurance is legally mandatory in Oregon and Idaho. Also, in other states, it is advised to have malpractice insurance because four out of five lawyers face risks of being in legal trouble themselves. Hence, attorney malpractice insurance covers lawyers from lawsuits arising from their primary area of practice, i.e. fighting legal cases. 

Some additional duties that a lawyer might perform and get coverage for under the lawyer malpractice act are: 

• Acting as a trustee 

• Acting as the notary public 

There are two types of malpractice coverages. Since claims for negligence can be made years after the incident, understanding these coverages is essential. A malpractice insurance policy can either be a “claims-made” policy or a “claims occurrence” policy. 

A “claims-made” policy would provide coverage only if the policy was in effect both when the incident happened and when the case came up.  

A “claims occurrence” policy would provide coverage if the incident happened in the policy period, irrespective of when the case came up.  

Overall, malpractice insurance provides coverage for lawsuits related to malpractice and also includes coverage for damage to third party from named perils.

What are the common exclusions of this policy?

Some actions related to malpractice cases are legally and ethically wrong. Therefore, these actions are excluded from the coverage of malpractice insurance. 

Some of the common exclusions of medical malpractice insurance are: 

• Actions done when a person is intoxicated 
• Sexual harassment or misconduct 
• Fraudulent activities 
• Bodily injuries from auto vehicles (primarily related to transporting patients) 
• Damages from sources other than the named perils 
• Claims arising out of specific procedures 
• Claims arising from the misuse of personal information of patients. 

Some exclusions from the lawyer’s malpractice insurance are: 

• Legal services provided to a business owned by the insured 
• Fiduciary services (there is a separate policy for this coverage, that is, fiduciary insurance) 
• Property Damage (PD) or Bodily Injury (BI) as a result of the practices of the lawyer 
• Dispute settlement costs between two lawyers of the same attorney 
• Intentional fraudulent activities.  

All malpractice policies exclude punitive damages. If a complainant proves that a professional’s mistake was intentional and leads to a severe consequence, it is considered punitive damage. These types of acts are punishable and uninsurable by law. 

All malpractice insurance policies include defense costs. Defense coverage is of two types: duty to defend and non-duty to defend. In you add a duty to defend clause in your policy, the insurer takes up the duty of choosing the lawyer for you and also settles your case with your consent. The insurer will fully pay the settlement amount in this case. However, if you have a non-duty to defend clause, the insurer will only pay a limited amount for the coverage irrespective of the settlement amount.   

 The common endorsement to malpractice insurance is: 

• Tail coverage for death, disability, or retirement: This type of coverage is essential for professionals who are near their retirement age. Tail coverage will provide additional protection for claims that came up after the initial policy coverage period. In the case of disabilities or death, such policies come in handy.  

Other endorsements to malpractice policies depend upon personal requirements. For example, a criminal lawyer can add security personnel coverage to their named perils. This is because the criminal lawyer might need added security while fighting with dangerous criminals. One optional policy that you might add to your malpractice insurance package is: 

• Cyber liability clause: Many insurers have started adding cyber liability insurance as an endorsement to healthcare malpractice insurance. Data of patients is stored online and is vulnerable to data breaches and cyber-attacks. As per Infosec, approximately 95 % of all healthcare institutions have been victim to cybercrimes. 

Types of insurance that include malpractice insurance policy 

A few industry-specific insurance packages that include malpractice policy are: 

1. Construction insurance
2. Beauty insurance
3. Lawyer insurance
4. Nursing insurance  

What are the factors that determine the cost of malpractice insurance?

Malpractice insurance premiums vary from one policy to another. People belonging to different professions or different fields of the same profession have different insurance needs.  Medscape states that specialists pay higher premiums when compared to primary care physicians each year.  

Some factors that determine the cost of malpractice insurance are: 

1. Location: Different state laws and minimum policy requirements make the location a prime factor determining the price of malpractice insurance.  
2. Specialty: Each area of specialty, whether it be legal or medical, has a different level of risk. For example, surgeons have more at stake than general physicians, and hence they need more coverage. Therefore, the risk of the field of specialty is directly proportional to the price of an insurance policy. 
3. Claims history: Most of the malpractice insurance companies give discounts based on the history of claims of the client. Usually, most carriers offer up to 20% discount for a clear account of claims. Therefore, claims history is a determining factor for the price of malpractice insurance. 
4. Hours worked: Number of hours worked determines whether a professional is a part time employee or a full-time employee. Generally, people working for more than 20 hours a week are full-time workers, and professionals working for less than 20 hours are part-time employees. Hence, full time employees pay higher premium as they require more coverage and vice versa.  
5. Policy limits: Policy limits is the maximum amount that an insurer will cover for the losses of an insured. Higher policy limits demand higher premiums. Therefore, the policy limits play a role in deciding the premium amount.

Typical cases of malpractice where a malpractice insurance could cover your losses

Malpractice cases are most common amongst medical professionals. As per HG.org, some of the common cases of medical malpractice are:  

1. Misdiagnosis: Misdiagnosis cases are when a doctor wrongly diagnoses, does not diagnose, or delays the diagnosis of a medical condition in a patient. For example, if a person has cancer, and the doctor ignores his complaints in the initial stage, this could lead to loss of life. Malpractice insurance will cover financial losses in case of a lawsuit.  
2. Childbirth injuries: Injuries to a child while in the womb or during the delivery are sensitive cases of medical malpractice. The Baltimore Sun states a situation where a baby and the mother got $73 million over a case. The mother filed a lawsuit after the baby suffered permanent brain damage during the delivery.  
3. Medication errors: Medication errors include prescribing or administering wrong drugs or medicines to patients. These errors are a common claim source for medical malpractice insurance.  
4. Surgery errors: Errors during surgery are one of the most severe types of medical negligence cases. Surgical errors include operating on the wrong body part or making a mistake during the process of operation. If the patient files a case for such errors, it can cause hefty amount of loss to the surgeons. 

Some of the common attorney malpractice cases are: 

1. The lawyer avoids communication with the client without any reason behind the action. 
2. The client loses the case because the lawyer missed filing documents on crucial deadlines. 
3. The attorney settles the case without the consent of the client. 
4. The lawyer is unaware of the law or does not have adequate knowledge of the case. 
5. The lawyer leaks personal and confidential information of the client to the opposite party or others. 

FAQs on malpractice insurance