How Your Tail is Covered

Engineers, lawyers, accountants and other professionals feel comfortable changing insurance providers to ensure they get the best price and service for their professional indemnity insurance. In this article, we address the single most common question we get from doctors, providing doctors with the facts to beat the fear mongers and to have the confidence to make the right choice for their indemnity cover.

Tail cover continues to be the single most common question when doctors consider their insurance choices. Many of these concerns came out of the disarray and fear of the medical indemnity crisis. In the end, the cover for a doctor's tail is surprisingly simple for the doctors that have chosen Invivo. There are three scenarios:

1. Any existing claims or notified incidents (no matter when they become a claim) remain with the provider to which they were reported. ¹
2. Unknown claims/incidents from procedures/advice when the doctor was on a claims incurred policy remain with the doctor's provider at that time.
3. Unknown claims/incidents from procedures/advice prior to being insured by Invivo (and are not in 1 or 2) belong to Invivo.

Many of you like to get into the detail of these things. So lets commit a few paragraphs to defining some key terms (in bold).

Tail, from an insurance company's viewpoint, is liability that extends into the future as a result of past events. As former APRA head Stephen Somogyi stated in his speech at Invivo's Victorian launch last year, medical indemnity is ". the longest tail business that you can underwrite. " What this means is that it has the longest potential period between an incident's occurrence and a resulting claim. Limitation periods vary from state to state and depend on numerous factors. For a full discussion, see this article from our October newsletter.

Run-off cover is commonly confused with retroactive cover (see below). In essence, they are opposite sides of a coin. If you want to switch insurers, and cover your tail exposure generated through practising medicine with your previous insurer, you would buy run-off cover from them. They insure your "tail" as you "run off" to your new insurer! Alternatively, you could go to your new insurer and ask them for retroactive cover. The new insurer looks into the "retro" view mirror and watches your tail for you.

Claims incurred policies are no longer available in the Australian medical indemnity market. They were once the industry standard and included tail cover, because an incident did not have to be notified prior to the end of the policy period. These are policies where "the insurer agrees to indemnify the policy holder for any valid claims arising from incidents that occur during the coverage period, with a claim able to be lodged at any time in the future.²"

You can see the problem with these policies - they respond to claims notified years after the event in question, and the insurer may have no idea the event even occurred. This makes it very difficult to quantify the potential liability generated by the policy.

Since the industry crisis of 2002, the effect of a number of resultant state and federal legislative changes has led to claims made policies becoming the industry standard. These are policies where "the insurer agrees to indemnify all claims arising from incidents notified during the policy period, so long as the incident occurred during the current period, or any previous periods in which the policyholder has held continuous claims-made cover with the insurer up to and including the current period, or to an earlier retroactive date.³"

Retroactive cover is "cover purchased to extend the period of incidents for which notifications are covered. This type of cover is purchased from the medical indemnity provider to which the medical practitioner is moving, enabling them to notify their new provider of claims which relate to incidents that occurred prior to joining that provider. This type of cover typically applies to claims-made cover.⁴" The retroactive date therefore, is the date in the past to which the retroactive cover extends.

The main point of all this is that claims made policies allow the insurer to more accurately assess its potential liabilities, enabling it to "rule off" its books at the end of the policy period. At this time, it knows that no further claims can be made against that policy. It does not, however, enable the insurer to deny a claim which arises from an incident notified during the policy, years down the track.

So what if I want to change insurer?

This is a common question for us. Fortunately, for most practitioners, the answer is relatively simple.

A - Invivo will issue a quotation to a doctor, based on the retroactive date that they need. This date will depend on the doctor's current insurer and assumes the doctor does not intend to purchase run off cover from their old insurer.

B - If a claim is subsequently made, pertaining to an incident on or after the retroactive date, then the Invivo policy will respond, provided the incident was not notified to the prior insurer and the doctor was not aware that the incident might proceed to a claim. If the incident in question was notified to the prior insurer, within a prior policy period, that policy would respond instead, subject to its application.

So my retroactive date changes - what happens to my premium?

A change in retroactive date generally means a premium adjustment. Obviously, if Invivo is asked to cover a doctor's tail further back in time, the premium may increase. Conversely a more recent retroactive date may mean a lower premium.

There is more to the story though. If an anaesthetist is involved in a case with a bad outcome, the extent of that outcome is usually known within a short period of time. Conversely, certain specialties are more prone to seeing claims occur many years after the incident. An example is obstetrics, where the long term ramifications of perinatal injury impose a lengthy discovery period. Somewhere in between these two extremes, lie most surgical specialties.

During the application and underwriting process, Invivo can then adjust the premium for the altered retroactive date. As explained above, the premium surcharge/discount will vary depending on the nature of the doctors practice. For many doctors however, this process will not involve a large premium change, due to the lengthy period that has now elapsed since their switch to claims made coverage.

What about ROCS?

ROCS, or Run Off Cover Scheme, is a government program designed to provide tail cover to doctors who are leaving the workforce, for various reasons. It is a whole article in itself - please see here for more information.

Take home message

There are myriad circumstances in which a doctor might become concerned about tail cover and the potential for a gap in their medical indemnity insurance history. If, after consideration of the above, you are concerned about a gap, Invivo is always happy to assist doctors to clarify their situation. Call 1800 103 779 for more information.

Grahame Willis
Chief Underwriter
Invivo Medical Indemnity

References

1. INSURANCE CONTRACTS ACT 1984 - SECT 40.3 - Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.
2. Audio file of Stephen Somogyi's speech, Invivo Victorian launch 24/5/07
3,4,5. ACCC Third Monitoring Report - Medical Indemnity Insurance, December 2005, pp. vi-viii