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A closer looks at medical malpractice coverage triggers

Most healthcare providers look at their insurance policies more as a costly expense, a nuisance and a necessity for their licensing rather than a legally binding contract. However, that is a oversimplification. A medical malpractice insurance policy IS a contract and must be treated as such. The terms and conditions of the contract can vary from company to company and even among different policies issued by the same company.

Few contract items demonstrate this more clearly than the wording surrounding the issue of “triggers”. For simplification purposes, we will assume coverage is on a claims-made coverage from. Claims made policies exclude coverage for incidents that were reported to previous insurance companies. Some have exclusions for bad outcomes that an insured “should have” reported to a previous medical malpractice insurance company. Because of this exclusion, providers that have had bad outcomes or have reported incidents have to be certain that any lawsuits that arise from those incidents are covered by either an old or new insurance company. This is where demand and incident triggers come into play and require special attention.

When a medical professional liability insurance company issues a policy that has an incident trigger, any incident reported to it remains its responsibility. This is true even if the insured switches to another company in subsequent policy years. With an incident trigger, the insured can report a bad outcome the day it happens, even if there has been no threat of a lawsuit, and know that the company to which the incident was reported will always be responsible for any future claims based on this incident. If an insured cancels that policy, a tail does not need to be purchased from that company for the claim to be covered.

When a medical malpractice insurance company issues a policy that has a demand trigger, insurance company responsibility for an incident cannot be triggered until a patient has made a demand for money or filed a lawsuit. With a demand trigger policy, an insured with a bad outcome that was reported to an insurance company, who thereafter switches to another company before a claim is made, is likely to find that any suit based on this bad outcome is not covered by either the old or new insurance company. It is not covered by the old insurance company because the insured is no longer covered by it and responsibility for this incident was not triggered before the insured switched companies. It is not covered by the new carrier, because its policy excludes any incident that was or should have been reported to a previous company. Clearly, those insured by demand trigger policies have to exercise great care in switching companies.

Some policies are even more particular in their “demand trigger” wording and require a “written demand”. In these instances, there is no trigger for coverage until there is a written demand for damages. I find it curious that some “demand” policies list a suit as a trigger as they are obviously written and raise the bar for the triggering of coverage by making the policy a de facto “written demand”.

There are hybrid versions of these two policy forms: policies that are incident trigger within a short window (30-60 days) after medical services were rendered, and demand trigger after that time; and, policies that are similar to demand trigger policies but are a little more liberal in defining what triggers coverage (e.g. a lawyer’s request for records).

Whenever a provider has the option between a demand and incident trigger policy, the incident trigger should be taken. That might sound like a very broad generalization, but I can not emphasis its importance enough. Demand trigger policies can force insureds with even a single dormant incident to stay with that company for years, to avoid a gap in coverage. Anyone who is forced to stay with an insurance company because of an open incident is a bit like the “tail waging the dog”. If such a case were to occur, the insured can be subjected to significant premium increases and even changes of coverage. And even the passing of the Statute of Limitations is not a complete guarantee against future claims because, under certain circumstances, the Statute of Limitations can be breached. The only way a change can be made to another company with certainty that a reported incident is covered is by purchasing a tail from that demand trigger company. That can be very expensive and negates any premium savings from prior policy years. It is no cliché that the insurance coverage must fit the business, not vice versa.

Given the current competitive nature of today’s market, negotiating for the broadest terms and conditions is one area often overlooked at the time of renewal. While premium costs are always of paramount importance, it is vital to be sure healthcare providers pay attention to policy wording.

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