What Is Claims-Made Malpractice Insurance?

Malpractice insurance protects professionals, such as those in healthcare and law, against allegations of errors or negligence. This coverage helps mitigate costs associated with legal defense, settlements, or judgments. Claims-made policies are a common type of professional liability coverage. Understanding their structure is important for ensuring continuous protection.

Defining Claims-Made Malpractice Insurance

Claims-made malpractice insurance policies provide coverage when a claim is made and reported to the insurer during the active policy period. Both the alleged professional error and the claim reporting must occur while the policy is in force. The timing of the actual incident is secondary to when the claim is formally presented.

This mechanism differs from an “occurrence” policy, which covers incidents that occurred during the policy period, regardless of when the claim is reported. An occurrence policy’s coverage for an incident remains active even if the claim surfaces years later. A claims-made policy requires continuous coverage to protect against future claims from past services.

Claims-made policies grew as insurers sought a more predictable way to manage long-tail claims, where the gap between an incident and a claim can be extensive. This structure allows insurers to better assess financial exposure, which can translate to lower initial premiums compared to occurrence policies. Professionals like physicians and lawyers often use claims-made policies.

The initial premium for a claims-made policy is lower in its first year because exposure is limited to incidents reported within that year. As the policy renews, the coverage period extends, encompassing a longer history of professional services. Premiums gradually increase over several years, reaching a “mature rate” after four to six years, reflecting accumulated exposure.

Key Components of Claims-Made Policies

Claims-made malpractice insurance policies include specific components that define the scope and duration of coverage. Understanding these elements helps manage professional liability exposure.

Retroactive Date

The retroactive date is a specific date in a claims-made policy marking the earliest point for which professional services are covered. Claims from incidents occurring before this date are not covered, even if reported during the active policy period. This date limits the insurer’s liability for past acts.

When a claims-made policy is first purchased, the retroactive date is the same as the policy’s inception date. As the policy renews, this date remains unchanged. The current policy covers claims for incidents on or after that original date, provided the policy remains continuously in force. This continuous renewal maintains coverage for past professional activities.

Extended Reporting Period (ERP) / Tail Coverage

An Extended Reporting Period (ERP), or “tail coverage,” is an endorsement added to a claims-made policy. It provides coverage for claims reported after the original policy has terminated. Tail coverage allows claims for incidents that occurred before the policy ended to be reported, even if not reported at termination.

Tail coverage is purchased when a professional retires, leaves a practice, switches to an occurrence policy, or changes to a new claims-made insurer without prior acts coverage. The cost is a one-time fee, often 150% to 250% of the last annual premium. It can offer coverage for a specified number of years or an unlimited period. Without tail coverage, claims filed after a claims-made policy terminates are not covered.

Prior Acts Coverage / Nose Coverage

Prior acts coverage, also called “nose coverage,” is offered by a new claims-made insurer. It covers claims from professional services rendered before the new policy’s inception date. This coverage adopts the retroactive date of the former policy, allowing a professional to switch insurers without purchasing tail coverage from their previous carrier.

When a new claims-made carrier provides prior acts coverage, they cover claims for incidents on or after the original retroactive date of the previous policy, provided the new policy remains active. This transfers liability to the new insurer, ensuring continuous protection for past professional activities. Prior acts coverage is an alternative to tail coverage when transitioning between claims-made policies with different carriers.

Navigating Policy Transitions

Transitioning between malpractice insurance policies, especially claims-made policies, requires careful consideration to avoid gaps in coverage. Decisions made during these transitions impact a professional’s financial protection for past services. Understanding your retroactive date, Extended Reporting Period (ERP), and prior acts coverage is important.

When a professional ceases practice, retires, or leaves their profession, purchasing an Extended Reporting Period (ERP), or tail coverage, from the existing claims-made insurer is necessary. This ensures future claims from services performed during the active policy period remain covered, even if reported after termination. Without tail coverage, a professional is exposed to liability for past work once their policy expires.

When moving from one claims-made policy to another with a new insurance carrier, professionals have two primary options for continuous prior acts coverage. They can purchase tail coverage from their old insurer, or the new insurer may offer prior acts coverage (nose coverage). The new carrier, by providing nose coverage, assumes responsibility for claims from incidents on or after the original retroactive date of the previous policy. Choosing between these options involves comparing the costs and terms offered by both the old and new insurers.

A transition from a claims-made policy to an occurrence policy requires securing tail coverage from the claims-made carrier. The occurrence policy only covers incidents from its inception date forward. Tail coverage protects against claims from services rendered during the prior claims-made policy period. Moving from an occurrence policy to a claims-made policy does not require tail coverage from the prior occurrence policy, as it covers past incidents regardless of when the claim is made.

Reviewing policy terms and consulting with an insurance advisor is recommended for any transition. This helps ensure seamless coverage, accounts for the retroactive date, and mitigates potential exposure to uninsured claims.