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Malpractice Insurance

Updated on April 29, 2024
Article byRishab Nigam
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Malpractice Insurance?

Malpractice insurance is insurance that is taken and purchased by the medical professionals and experts to safeguard themselves against professional Liability. This is a type of insurance product that offers protection to doctors, medical professionals and experts from those patients who initiate legal cases or suits against them on account of medical negligence on their part.

What Is Malpractice Insurance

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It is a type of professional liability insurance product. It helps the medical experts in claim settlement when the patient’s file for legal suits against them claiming medical negligence. Each policy can help the medical experts on the claim settlement to the claim limit as prescribed within the policy.

Key Takeaways

  • Malpractice insurance, also referred to as professional liability insurance, offers protection to professionals against financial losses arising from claims of negligence, errors, or omissions in their professional duties. 
  • It provides coverage for legal defense costs, settlements, and judgments related to malpractice claims.
  • Professionals in fields such as medicine, law, accounting, architecture, and others where mistakes can have significant consequences commonly purchase malpractice insurance. It safeguards them from potential financial harm or personal injury claims made by clients or patients.
  • Malpractice insurance policies typically include coverage for legal expenses, settlements, and judgments resulting from malpractice claims. 

Malpractice Insurance Explained

Malpractice insurance is a type of insurance policy designed for medical professionals to protect them from financial losses against claims due to medical errors or negligence during the course of their professional duties. It cover any legal expense or claim settlement that might arise from legal suits and procedures files against the insured medical professional.

These professionals might include nurses, physicans, surgeons, dentists or any other healthcare providers. In situations where such healthcare providers fail to meet their professional standards or cause any kind or injury or harm to the patient, such medical malpractice insurance protect them from the financial consequence.

Not only do they provide peace of mind and financial protection to the professionals, these policies also ensures a malpractice insurance attorney that will help them to defend themselves in the court and provide a cover against potential damage.

This kind of legal malpractice insurance product helps in the risk transfer function. They help in the risk transfer of liabilities from the medical experts or practitioners to the third party. The third-party can be categorized as banks and insurance companies. The third-party executes the risk transfer function by means of a contract between them and the medical experts, which details the terms and conditions of the insurance, claim limit, and the cost of the policy.

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Types

Malpractice Insurance Types

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It is generally of two types of medical malpractice insurance. They can be categorized as occurrence-based policies and claims-based policies.

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#1 – Occurrence Based Policies

The occurrence-based policies help in claims settlement as and when they occur during the tenure of the policy. It is not dependent when the claims are made. The occurrence-based policies are termed as long-tail policies. The long-tail policies remain in force even if the insurance company has closed its business or the medical expert has changed his jobs or place of practice.

#2 – Claims Based Policies

The claims-based policies help in claim settlement as and when they occur and are filed for the claiming process when the policy is in full force. Claims-based policies are termed as short-tail based policies. The short-tail policies do not always remain a full force, and once the period of policies has lapsed, it has to be renewed. Any damage or liability incurred by the practitioner during the lapse period results in substantial loss to the expert itself.

Examples

Example #1

Suppose an individual complains of chest pain. He approaches the medical expert who, after diagnosis, recommends certain types of procedures on the heart. The individual undertakes the operation for heart ailment as per the initial diagnosis given by the doctor. However, later it is revealed that the individual suffered from a mild ulcer in a food pipe close to the chest and would have been easily cured with oral medications. In such a scenario, the patient can file a case with the medical expert and can claim for the damages. As a medical expert does not have access to a large amount, the legal malpractice insurance can help the expert repay for the damages incurred on account of diagnostic error.

Example #2

Suppose an individual had to go for a small procedure in one of the fingers. However, the medical expert performs a good procedure but mildly damages the adjacent fingers. The patient can approach the court and can raise legal liability on the doctor if he is able to prove medical negligence. If found guilty, the doctor can repay the amount by using the protection as offered under malpractice insurance.

Cost

The policies involve some costs that the professional seeking the insucrance needs to bear in order to get the policy. They are as follows:

  • The cost depends on the type of specialty the doctor or medical practitioner deals in. The cost of the insurance depends on the type of policy that is whether they are claims-based policies or occurrence-based policies. The claim limit, as prescribed in the policy, determines the cost of the policy.
  • The cost of the policy also depends upon the past loss history in line with the medical experts as well as location and their legal laws.

What Does Malpractice Insurance Cover?

It covers only the events that result from medical negligence. However, the policy provides certain exclusions as well. The policy won’t settle any claim if the medical practitioner provides services in the influence of alcohol or they have involvement in any kind of sexual misconduct or if they share patients’ records without their approvals or they were repeat offenders and had involvement in illegal pursuits. . It is necessary to consult a malpractice insurance attorney regarding the matter and they select a suitable policy as per the professional requirement.

Need

The need of malpractice insurance exists in various areas, which are explained below:

  • As per several surveys undertaken in the US, it was determined that the majority of doctors would require malpractice insurance.
  • There has been a rise in the levels of diagnostic errors on the part of medical professionals, which also has resulted in the deaths of the patient itself.
  • There has been a rise in the number of suits that involve medical negligence and diagnostic errors as of the present day.
  • To curb the current impending demand and to compensate the patients on account of medical misconduct, malpractice insurance is required and much needed.
  • The doctors don’t have access to big lump sums to cover such costs, and hence they undertake such policies to cover such costs and liability.
  • It protects the practice of doctors at the same time it helps in covering the costs arising out of the claims of the affected patients.

Advantages

There are some advantages to the method. Let us understand them.

  • This is utilized as a risk transfer function.
  • They help in the protection of the reputation of medical experts.
  • It offers protection even when the patients file fake lawsuits.

Disadvantages

Along with advantages, the process haas some disadvantages also, as given below:

  • The insurance companies may put in consent to settle clauses wherein the insurance companies may not seek the consent of medical experts and can reject the claims as prescribed under lawsuits.
  • The insurance company can apply harsh covenants taking the loss history and location’s laws into account as well as limit the amount of settlement for the practicing medical practitioner.
  • The policies normally carry strict exclusions as well.

How To Get?

There are some basic steps to get this kind of insurance policies. The steps are as follows:

  • Research for insurance providers – The first step involves looking and researching for suitable insurance providers who are reputable and specialized enough in this field and who also has a good past track record of providing useful policies to their clients.
  • Coverage assessment – It is necessary to evaluate how much cover the professional needs which will be based on the type of work, the level of risk, the type of patients handled, the location, size or volume of practice, etc.
  • Gather necessary documents – The professional seeking the policy should be ready with the necessary documents, duly filled application, liscences, practice details, any history of claims, and any other supporting documents that are required for the process.
  • Collect quotes – The next step is to collect the malpractice insurance quotes from various insurance providers and compare the premium amount, coverange limits and other terms and conditions in the quotes and also look for any additional coverages and useful features.
  • Purchase – If everything looks good and the malpractice insurance quotes suitable enough for the professional, and if the coverage, protection policies and terms align with the requirement, then the policy can be purchased.
  • Complete application – The professional has to submit the completed application process along with the liscenses and certificates and pay the required premium so that the policy is activated.
  • Keep the policy active – The medical practitioner should continue to keep the policy active by paying the premiums on time and ensure that it continues to meet the necessary requirements. The policy holder should also update the insurance company regarding any change in the staff, practice procedure, volume of clients, risk level, location, etc, so that the insurance provider can make the necessary changes if required.

Malpractice Insurance Vs Professional Liability

  • The professional liability is an insurance product that helps settle claims for the experts and professionals arising out of the professional hazard.
  • The takers of the professional liability comprise of lawyers, professional experts, and accountants.
  • The malpractice insurance is a variant of professional liability insurance itself wherein it helps the medical practitioners settle claims raised by their clients or patients.
  • The professional liability insurance settle claims for professionals other than the doctor.

Frequently Asked Questions (FAQs)

1. How are malpractice insurance premiums determined?

Malpractice insurance premiums for professionals are determined based on various factors such as the type of profession, location, claims history, coverage limits, and the level of risk associated with the particular field. Insurance companies analyze these factors to assess the likelihood of a claim and calculate the premium accordingly. 

2. Do malpractice insurance applies to attorneys?

Yes, malpractice insurance applies to attorneys. Attorneys, like other professionals, can obtain malpractice insurance to protect themselves if they face claims or lawsuits alleging negligence or errors in their legal services. In addition, malpractice insurance for attorneys provides financial coverage for legal defense costs, settlements, or judgments, helping to mitigate potential financial and reputational risks associated with professional liability.

3. What is Claims-Made vs. Occurrence malpractice insurance?

Claims-Made and Occurrence are two types of malpractice insurance coverage. Claims-Made insurance covers claims made and reported during the policy period, regardless of when the incident occurred. Occurrence insurance covers claims based on when the incident occurred, regardless of when the claim is reported. The key difference lies in the coverage period and how claims are handled.

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