Medical Liability Policies Are Typically Claims-Made

Retroactive Period Serves to Limit Liability Period

Medical malpractice liability insurance policies, like most professional liability policies, are typically “claims-made” policies. Claims-made policies generally provide coverage only for those claims that are made during the policy period notwithstanding when the claim arose, provided the claim also meets all other coverage requirements.

Most policies covering liability outside of professional liability are “occurrence” policies and provide coverage for an “occurrence” during the policy period, irrespective of whether the claim arising out of the occurrence is made during or after the policy period.

In short, the difference between the two policies is that for an occurrence type policy, the occurrence triggers coverage, whereas in a claims-made policy, the notice or making of the claim is the event triggering coverage.

Claims-made policies were created primarily because the discovery of professional negligence and/or the realization of damages resulting from professional negligence typically occur a substantial time after the act of negligence itself. This creates the possibility of claims arising long after the policy period has expired, increasing the difficulty in evaluating the risks of a loss. Courts and insurers also found it problematic to decide whether the date of the alleged negligence, date of discovery of the alleged negligence or date of the injury caused by the alleged negligence was operative to determine insurance coverage. [See Kroll, The Professional Liability Policy: “Claims-Made,” 13 Forum 842, 843 (1978).]

The Determinant Factor

Claims-made policies resolved those difficulties by rendering the date when the claim is made the determinant coverage factor. When an insurer first issues a claims-made policy to a new insured, the policy usually contains a “retroactive period” that, in effect, provides that the policy will not cover a claim although made during the policy period if the underlying act of negligence occurred prior to the retroactive date set forth in the policy. This places some limit on the potential claims that might be covered.

There are other variations on the notice requirement of claims-made policies. Some policies require the claim be made and reported to the insurer during the policy period. Claims-made policies may also contain “savings” clauses that typically provide that claims made during a certain period after expiration of the policy period will be deemed to have been made during the policy period if the insured gives timely notice of the circumstances underlying the claim.

Courts have noted that claims-made policies “work perfectly,” so long as an insured who is covered under a retroactive date clause in his initial policy continues to purchase successive policies from the same insurer. Problems can arise when the insured changes insurers or does not renew the policy. That can lead to a claim for which there is no coverage.

When these circumstances arise and coverage is denied, the insured searches for reasons to invalidate the notice requirement of the claims-made policy as the event triggering coverage. Typically, these arguments are based on the contention that claims-made insurance policies violate public policy. However, courts in most states have rejected public policy arguments against claims-made policies. [Handbook on Insurance Coverage Disputes, §4.02(b) (Aspen Publishers, 14th Ed. 2008)]

Topics Claims Professional Liability