April 25, 2022

Understanding Your Professional Liability Policy

Professional liability insurance is important to physicians for various reasons. Its primary purpose is to fund the costs to defend claims alleging professional negligence and to fund the payment of any loss determined by settlement or judgement. Physicians practicing in Michigan are not mandated by state law to maintain professional liability insurance. However, as a practical matter, physicians must generally maintain professional liability insurance as a condition of medical staff privileges at hospitals and other facilities and to contract with health plans.

To understand and limit potential risk exposure, physicians should familiarize themselves with the terms of their professional liability policy, particularly if such insurance is maintained on their behalf by a hospital or other organization. This article summarizes some of the key components of a professional liability policy which physicians should understand.

Type of Professional Liability Insurance Policy

There are two types of professional liability insurance policies – an “occurrence-based” policy and a “claims-made” policy. An occurrence policy typically covers an alleged act or omission of professional negligence which is alleged to “occur” during the policy period, even if the claim is asserted against the physician and/or reported to the insurer after the policy period ends. Under a claims-made policy, the alleged act or omission must occur within a time frame defined in the policy, and the claim must be asserted and reported during the policy period or within any defined time following the end of the policy period in order to obtain coverage under the policy.

Limits of Liability Coverage

Insurance policies generally impose limits of liability coverage for each claim asserted against a physician during the policy period (usually 1 year), as well as the total limit of liability coverage for the policy period (also known as the “annual aggregate”). Each policy period generally has its own limits of liability per claim and in the annual aggregate. It is important for a physician to understand a policy’s limits of liability per claim and in the annual aggregate to assess the physician’s potential risk exposure in the event one or more claims result in losses exceeding available limits of liability. Importantly, attorney’s fees and other defense costs normally do not erode (i.e., reduce) the per claim and annual limits of liability provided by physician professional liability policies.

Read Kathleen’s complete article on page 8 in the First Quarter 2022 edition of the Detroit Medical News.

Kathleen A. Westfall maintains a business practice focused primarily on Close Up - Kathleen Westfall of Kerr Russellhelping clients to navigate complex licensing and regulatory issues related to state and federal health care laws and regulations. She assists health care clients with a number of corporate and contractual issues and disputes, including third party payor audits, insurance coverage matters, and reviewing, drafting and negotiating various contractual agreements. She also represents health care professionals and facilities in connection with licensing investigations and other enforcement actions by state and federal agencies.

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