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Our Medical Malpractice Insurance Glossary Please keep in mind that definitions vary from carrier to carrier and as a result we have made these definitions as general as possible. They are meant to provide general information but should in no way be construed as advice. Please contact us or your carrier for their specific definitions. Remember to always consult your policy. Absolute Liability – Liability regardless of fault. Accident-year Basis – The annual accounting period, in which loss events occurred, regardless of when the losses are actually reported, booked or paid. Allocated Loss Adjustment Expenses (ALAE) – Expenses directly attributable to specific claims. Includes payments for defense attorneys, medical evaluation of patients, expert medical reviews and witnesses, investigation, record copying, etc. Annual Aggregate Limit (claims made) – The maximum amount the carrier will pay for all claims arising from incidents that occurred and were reported during a given policy year. Annual Aggregate Limit (occurrence) – The maximum amount the carrier will pay for all claims arising from incidents that occurred during a given year of insurance. Assessability – A policyholders obligation to pay additional money, in excess of premiums, to cover past company losses for which reserves have proven to be inadequate. Trust arrangements and joint underwriting associations are generally assessable. (See also “Nonassessable.”) Assets – All the property and financial resources owned by an insurance company. Admitted Assets are those assets that are liquifiable to raise cash to pay claims. Nonadmitted Assets are assets, such as real estate (other than home office), furniture, and other equipment that are not liquifiable. Assumed Premium – The consideration or payment an insurance company receives for providing reinsurance for another company. Attorney-in-Fact – The entity that manages an interinsurance or reciprocal exchange and to whom each subscriber (policyholder/owner) gives authority to exchange insurance among the subscribers. Bundling – The practice of grouping several individual procedures or services together for the purpose of paying for them as one package. Claim – A written notice, demand, lawsuit, arbitration proceeding or screening panel in which a demand is made for money or a bill reduction. Claims-Made Coverage – The most common type of professional liability coverage available, it provides protection for claims that occur and are reported while the policy is in effect (coverage period). Within the conditions of a claims-made policy, a claim must be reported to the carrier in writing by the insured. Tail coverage, or a Reporting Endorsement, provides coverage for claims that occur during the coverage period but are reported after the policy terminates. Claims-Paid Coverage – Under a claims-paid policy, premiums are based only on claims settled during the previous year and projected to be settled in the coming year. Many claims-paid policies are assessable for a number of years, or even indefinitely, after a physician has terminated the policy. Claims Reserves (claims-made policy) – Funds set aside to satisfy those claims that have been reported to the company but not yet resolved or paid. Claims Reserves (occurrence policy) – An additional reserve must be set aside for incidents that occurred but were not formally reported during the policy year and are expected to be reported after the close of the policy year. Claim Severity – Refers to the amount of financial liability resulting from settling a claim. A claim that is settled with no payment for damages is generally considered to have a “small” claim severity, while a claim in which the carrier pays the full limits of a policy is a “large” severity claim. Trends in claims severity on a specialty-by-specialty basis are important factors in setting rates each year. Composite Rate – A composite rate is a unique component of claims-made insurance coverage. Composite rates are used by actuaries to calculate premiums in specific cases in which the future claims risk has been significantly reduced or increased. Date of Incident – The date on which a situation of alleged malpractice took place. Also called “date of occurrence.” Date of Reporting – The date of reporting is the date on which the incident was reported to the insurance company. Declaration – Also called “Declarations Page,” this portion of the policy states information such as the name and address of the insured, the policy period, the amount of insurance coverage, premiums due for the policy period, and any coverage restrictions. Deductible (voluntary) – Allows the insured to pay an amount of the “first dollars” of a claim payment and to pay a lower premium for assuming this risk. Deductible (involuntary) – Is imposed by the insurance company due to the adverse risk characteristics of an insured. Involuntary deductibles do not include a premium reduction. Deductible (straight) – Provides that all loss payments are reduced by the amount of the underlying deductible with no other considerations. Deductible (franchise or quota share) – Provides that the insured and the insurance company split all costs within the deductible amount, such as on a 50-50 basis. Direct Written Premium – A carrier’s gross premium written, adjusted for cancellations, before deducting any premiums paid or ceded to a reinsurer. Dividend – A partial return of premium to policyholders. Domiciled – Refers to the state in which an insurance company receives a license to operate. The company is then regulated by that state’s Department of Insurance. Earned Premium – The portion of premium that applies to an actual coverage period. Insureds usually pay a calendar quarter or more in advance of the actual coverage period; the advance payment is initially unearned and becomes earned incrementally during the ensuing coverage period. Economic Damages – Out-of-pocket damages, such as incurred medical expenses, lost wages, etc. Endorsement – An amendment, sometimes referred to as a rider, added in writing to an insurance contract or policy. Excess Insurance – A separate insurance policy with limits above the primary (or “first dollar”) policy. Experience Rating – The system of rating or pricing insurance in which the future premium reflects actual past loss experience of the insured. Extended Reporting Coverage –

Why medical liability insurance isn’t enough Medical liability is a ubiquitous concern for orthopaedic surgeons. The prospect of a lawsuit brings well-justified fears of a prolonged, unpleasant, and costly judicial process that could result not only in professional stigma but also in financial ruin. Laws capping tort damages have been effective in some states, but in many states, political forces make the adoption of such limits unlikely. Because hospitals in some states are protected under the doctrine of charitable immunity, individual physicians may be seen as the ultimate deep pockets in medical liability litigation. Medical liability insurance is imperfect protection Most physicians trust that medical liability insurance will protect their personal and business assets, but this reliance may be misplaced. Premiums have risen sharply over the past decade as insurers have adjusted to changes in legal and administrative costs and to the rising fraction of paid closed claims. Despite its increasing cost, medical liability insurance provides limited protection from the full range of tort liability. For example, medical liability insurance does not cover liability arising from activities inherent in running a medical practice but not directly related to the physician-patient relationship. These potential liabilities include employment lawsuits and tort claims from injuries sustained on the office premises. Jury awards in medical liability cases are often unpredictable and can exceed coverage limits. When this occurs, physicians’ personal assets and revenue stream are vulnerable to collection by the plaintiff. More isn’t necessarily better One way to address this risk is to pay for more insurance coverage. Harvard-affiliated physicians, for example, have medical liability coverage with limits of $5 million per suit and an annual aggregate of $10 million. High-limit policies may be somewhat effective in protecting physicians’ personal assets from loss as a result of medical liability litigation. In Texas, for example, a jury awarded $269 million to the family of a girl with cerebral palsy who died as a result of an overdose of propofol administered as a medication error. But the family later settled privately for $3 million—just under the total insurance policy limit of the three physicians involved. A “high-low” agreement between a plaintiff and defendant before trial may guarantee the plaintiff a sizeable minimum payment but limit the maximum payment amount to the insurance policy limit, regardless of the actual damages awarded at trial. Because such agreements are quite common, high medical liability insurance policy limits may also directly increase settlement amounts in high verdict cases. High-limit policies may also encourage lawsuits because they ensure a large pool of liquid assets available to tort plaintiffs and their attorneys. Because most plaintiffs’ attorneys are compensated on a contingency fee basis, lawyers have become the de facto gatekeepers of the medical liability tort system.9 An attorney working on a contingent basis may decide whether to accept a case by considering its merits and various economic factors. Before accepting a medical liability client, an attorney may estimate the probability (P) that the case has merit and the likely monetary recovery (L) should the client settle or win at trial. The a priori value of the case to the attorney is P times L times the contingency percentage (usually around 33 percent). If the value of the case is greater than the attorney’s predicted cost, he or she will proceed, but if the value of the case is lower than the cost, he or she is unlikely to continue and may even try to dissuade the potential client from pursuing the lawsuit. The potential monetary recovery depends both on the severity of the patient’s injury and on the physician’s ability to pay. To determine a defendant physician’s available assets, a plaintiff attorney’s first inquiry is invariably the policy limits of the physician’s insurance coverage. Insurance companies are ideal deep-pocket payors because they can make large lump-sum payments without the added transactional and legal complications implicit in seizure of personal assets or garnishment of income. Personal assets at risk A physician’s personal assets, if substantial and otherwise unprotected, also contribute to the pool of funds available to the plaintiff and the plaintiff’s attorney. A search of state and county records can uncover real estate, corporations, and other assets held in the name of the physician or his or her spouse. Private financial investigators and tactics such as “phishing”—attempting to discover account balances and other sensitive information by posing as the physician—may also be used. A large pool of medical liability insurance revenue contributes to a public perception and expectation that well-heeled and well-insured physicians have pockets deep enough to compensate patients who have adverse outcomes. Although the physicians’ medical liability coverage limits cannot generally be mentioned at trial, juries typically assume that doctors carry liability insurance adequate to compensate injured patients. In Florida, where some physicians elect to practice without medical liability insurance, state law requires them to post a sign in their offices informing patients that they have assets sufficient to cover at least $250,000 of any medical liability award. Expanding the boundaries To obtain monetary damages in an environment in which physicians have substantial insurance coverage and other vulnerable assets, attempts to expand the duties of physicians within the standard of care may be made. One illustrative case involved a 30-year-old man who underwent two hip surgeries—a left total hip arthroplasty (THA) and a right hip core decompression—in 1990. The two procedures were scheduled 7 days apart during the same hospitalization. Prior to the THA, the patient consented to participate in an experimental protocol and receive RD-Heparin, a low molecular-weight heparin being tested at the defendant’s hospital. After the patient failed to receive the first dose of the experimental medication at the time prescribed by the clinical trial due to a nursing error, he was excluded from the study and was started on aspirin on the first postoperative day in accordance with the surgeon’s standard anticoagulation prophylaxis protocol. The patient continued to receive aspirin through his hospital stay and after discharge to his home, but he suffered a fatal pulmonary

The short answer is no! There actually is a law in Florida (see 458.320, F.S.) that says doctors must carry $100,000 in malpractice insurance in order to practice medicine at all, and in order to have hospital staff privileges (they see patients in hospitals and not just in their offices) they must have at least $250,000 in malpractice insurance. As an alternative to having an actual malpractice insurance policy, Florida law also allows doctors to use other types of pre-arranged secured assets to cover claims in these amounts, like trust accounts, bank letters of credit, and similar arrangements. There is nothing inherently wrong with these other types of security, but they are rarely used. Unfortunately, these amounts of insurance are often woefully inadequate to pay the actual damages in medical negligence claims. What good is a $250,000 malpractice policy if the patient’s injuries result in medical bills of $600,000? What about wage losses and other damages? And the $250,000 is gross, not net after paying for expenses and attorney’s fees to file a suit to collect the money. Fortunately, some doctors and virtually all hospitals carry insurance policies in larger amounts. But the law also has a loophole that allows doctors to carry no insurance at all. If your doctor practices without insurance he should have a sign posted on the wall of his office advising his patients of that fact. Of course you have a problem if he doesn’t post a sign and he has no insurance. What will you do, sue him? You still have the difficulty of collecting, because … he has no insurance. If a hospital is involved in your injury, you may actually be able to sue the hospital for allowing the doctor to practice there without the required insurance or assets. See your lawyer about that. Many doctors hold title to their assets in ways to make it difficult to collect a judgment from them personally. CPA’s routinely give seminars to doctors with names like “How to Protect Your Assets From the Trial Lawyers”. They never give those seminars more appropriate names, like “How to Commit Malpractice, Cause Enormous Pain and Financial Injury to Your Patients and their Families, Yet Escape Any Responsibility To Them.” You certainly should think twice about knowingly going to a doctor who doesn’t carry malpractice insurance. A good doctor wants to have malpractice insurance for 2 reasons. First it pays for his lawyer if he ever needs one to fight a claim that he believes is without merit. But most importantly, if he does make a mistake the insurance is there to help his patient who has been unintentionally injured. If the doctor is a decent human being he knows that he can actually make a mistake, and he cares enough about his patients to want them compensated if he does. There is also something discomforting about any doctor that feels adversarial enough toward his patients that he is even willing to post a sign in his office advising them that they can’t get any money from him if he hurts them.Something else is alarming about a doctor that posts a sign in his office saying that he doesn’t have malpractice insurance. It may be that he has had so many prior claims, he simply can’t afford to buy insurance anymore because his insurance premiums got too high, or none of the insurance companies are willing to underwrite him. That should worry you as a patient.