Importance of Knowing Your Policy Conditions
Did you know that your medical malpractice insurance coverage contains policy conditions that must be met in order to keep the policy in compliance? Not knowing and not following through on these conditions can be detrimental to your coverage, including cancellation. We are telling you this because it happened to one of our clients, even though we strongly recommended he read the medical malpractice insurance coverage, including its policy conditions.
We do not want to see this happen to you. Let’s take a close look at the Conditions Clause from one of our medical malpractice insurance policies:
Policy Conditions – Obligation to Report Material Changes
The FIRST NAMED INSURED shall notify the COMPANY of any changes that might affect the terms of this insurance, including but not limited to any of the following:
1. a change in the location of the practice of any INSURED.
2. if any INSURED or LOCUM TENENS is denied medical staff privileges or has had such privileges restricted, revoked, suspended or reduced by a licensed health care facility.
3. if any INSURED or LOCUM TENENS voluntarily restricts, revokes, suspends or reduces medical staff privileges by a licensed health care facility.
4. if any medical licensing or other governmental agency investigates, restricts, revokes, suspends, places on probation, reduces or otherwise takes any other action with regard to the medical license or DEA authorization of any INSURED or LOCUM TENENS.
5. if any INSURED or LOCUM TENENS voluntarily restricts, revokes, suspends, reduces or otherwise takes any other action with regard to his or her medical license or DEA authorization.
6. if any criminal proceedings are instituted against an INSURED or LOCUM TENENS that are based upon, attributable to or directly or indirectly related to his or her status or conduct as a health care provider.
7. if any INSURED or LOCUM TENENS is ordered or instructed to enter or voluntarily enters a diversionary or rehabilitation program for alcohol, drugs or other substance abuse. Notice must also be provided upon the individual’s departure from such program.
8. if any INSURED intends or seeks to practice in an additional (1) location, (2) health care facility, or (3) area of medicine not designated in the PROFESSIONAL SERVICES endorsement attached to this policy.
9. a change in partners, officers, members or any changes in the structure of operations, ownership or control.
Policy Conditions Not Met – Real Example
One month ago, we received a Cancellation letter on behalf of our client. The insurance company chose to cancel the policy because the insured had not given notice of one of the items that was listed and required to report. Further, the Cancellation provided only 15 days in which to find replacement coverage. Here is the Cancellation Clause taken from this same policy:
Policy Conditions – Cancellation Clause
The COMPANY may cancel this policy more than sixty (60) days after its effective date by mailing or delivering such notice to the FIRST NAMED INSURED at least fifteen (15) days before the effective date of cancellation, provided such cancellation is based upon the following reason:
* An act or omission by any INSURED that substantially increases the hazards insured against, including but not limited to one or more of the material changes identified in Article IX.H.2.-7 (Referring to Obligation to Report Material Changes).
Subsequently, we needed to find replacement coverage in a hurry. In addition to losing the policy, the insured also lost time that he invested in earning a free tail upon his retirement. Now, he will now have to start investing time with his new carrier, which will make him eligible for a free Extended Reporting Period, also known as Tail Coverage, in another five years (v.s. three with the prior carrier).
In conclusion, we recommend you read your policy carefully so that you do not run into issues like the one explained here. We are happy to take the time to review your current policy with you upon request. We welcome you to add your comments. If this article has provided value to you, we ask that you share it.
Consent to Settle language within a malpractice insurance policy is important for insureds to understand prior to purchasing coverage. This is because the language within the clause details the extent to which an insured is responsible for claims payment, and how the claims will be paid. It can provide the insured with superior coverage or coverage left with unexpected holes in it. Let us look at the following Consent to Settle Clauses from two actual policies:
Consent to Settle – Example 1
The COMPANY shall not settle any CLAIM without the written consent of the INSURED against whom the CLAIM has been made. If the INSURED refuses to consent to any whole or partial SETTLEMENT of a CLAIM recommended by the COMPANY within the applicable Limits of Liability, the COMPANY’S obligation to make any further payments for amounts in connection with the CLAIM incurred after the recommended SETTLEMENT was proposed shall not exceed the amount for which the CLAIM could have been settled by the COMPANY had the INSURED consented to the SETTLEMENT. The INSURED is not entitled to, and the COMPANY will not be obligated to pay, any DAMAGES or CLAIMS EXPENSE beyond that amount. To the extent the COMPANY pays any DAMAGES or CLAIMS EXPENSE beyond that amount, you agree that, after the CLAIM ends, such amounts shall be repaid to us by the INSUREDS , each according to his or her respective interest.
Does this first example scare you? Well, we hope it does. This clause means that that if you do not agree to the proposed settlement, you may be left hanging with a large out-of-pocket bill, including final damages beyond the original settlement amount and defense expense costs, including expensive attorney fees.
Consent to Settle – The Hammer Clause
This first example contains what is commonly called the Hammer Clause, which is defined as: *A provision (also known as the “hammer clause” and “blackmail settlement clause”) found in professional liability insurance policies that requires an insurer to seek an insured’s approval prior to settling a claim for a specific amount. However, if the insured does not approve the recommended figure, the consent to settlement clause states that the insurer will not be liable for any additional monies required to settle the claim or for the defense costs that accrue from the point after the insurer makes the settlement recommendation.
Okay, let us look at – Example 2:
Consent to Settle Example 2
We will obtain written consent from you before we settle a claim against you arising from a medical incident. You agree to waive such right to consent under the following circumstances:
- The settlement amount is within any deductible amount applicable to the claim
- You are deceased or adjudicated incompetent
- Judgment is entered
- Your license to practice medicine is suspended or revoked
- The claim was reported under an Extended Reporting Period Endorsement to this policy
- You, after reasonable efforts by us, cannot be located
Aside from the understandable exceptions, this clause provides full consent, meaning should you decide not to settle, the carrier would keep defending on your behalf at no additional cost to you. The only caveat is if the final judgment goes beyond your purchased policy limits.
Making the Decision That’s Right For You
Understanding the Consent to Settle clause will help you in deciding which coverage is right for you. Should you choose coverage with full consent, such as the second example, you will be able to enjoy peace of mind in knowing that your carrier is really fighting for you. If you have any questions regarding your policy, we would be pleased to provide a no cost / no obligation consultation.
What are the concerns you have about your coverage? We welcome your comments below. If you find this post helpful, we simply ask that you share it.
*Reference provided by: International Risk Management Institute
The content is for informational purposes only. All matters must be analyzed on a case by case basis.