Coverage Issues for Non-standard Physicians: 3 Concerns with Dropping Prior Acts Coverage

[This is the first in a series of commentaries on coverage considerations for non-standard physicians.]

The vast majority of non-standard physician risks are written on claims-made policy forms.  It’s not unusual for me to get a request from my retail partner to insure a physician with no prior acts coverage upon renewal of their expiring policy.  This is also known as asking for a ‘retro date inception’ or RDI option. Sometimes my retail partners are being proactive and simply want to educate themselves on the difference in price in the event it comes up in a discussion with their client.  The majority of the time though, the physician is seriously considering dropping their prior acts in order to decrease their premium.

When your non-standard physician client is asking you for a retro date inception option, here are a few key points to consider:

1.  Uncovered medical malpractice claims are just one scary consequence of dropping prior acts.  

When a physician drops prior acts without buying tail coverage, they certainly create a gap in coverage that exposes their business and even personal assets.  Exposure to uncovered malpractice claims is bad enough, but there are other consequences to dropping prior acts that must be taken into consideration as well.

Hospitals and other medical facilities credential physicians to make sure they bring on board and retain qualified, capable practitioners.  One of the typical credentialing requirements is adequate medical malpractice insurance coverage that has been in place and uninterrupted for some significant period of time.  Gaps in coverage such as those created when a physician drops prior acts threaten their ability to continue practicing at the facilities at which they currently have privileges.  It also undermines their ability to obtain privileges at facilities they may wish to practice at in the future.  Dropping prior acts can save your client money today, but it could very well end up creating unforeseen and costly consequences in the future.

 2.  Purchasing a stand-alone tail policy after dropping prior acts is expensive and can be difficult to obtain.

Sometimes physicians realize they made a mistake in dropping their prior acts and want to correct the error.  Finding a stand-alone tail policy option once a significant amount of time has passed since the decision to dump prior acts can be difficult under the best of circumstances.  If the desire to buy a stand-alone tail policy is the result of claim activity stemming from medical treatment provided during the now uninsured period, it is next to impossible.  The best way to avoid an irreversible gap in coverage and all the potential problems that come with it, is not to drop the prior acts period in the first place.

3.  When your client drops prior acts it increases your E&O exposure.    

Any insurance related decision your client makes and puts into effect through you that elevates their exposure to financial loss also elevates your E&O exposure.  The bottom line is when your client suffers substantial financial loss as a result of dropping prior acts they may well look to you to recoup that loss.  If one of your non-standard physician clients decides to dump their prior acts, be sure to protect yourself with a solid waiver of liability that has been thoroughly vetted out and approved by a reputable attorney.

The next time you are asked by your client how much they will save if they drop prior acts, I suggest analyzing the potential consequences first.  Making sure the physician truly understands the many risks associated with such a decision protects both of your businesses in the end.