A medical malpractice insurance policy is a contract. The terms of the contract, what is covered and what is excluded, can vary from company to company and even among different policies issued by the same company.
Nothing demonstrates that more clearly than demand and incident triggers. In our last post, we discussed the differences between claims made and occurrence policies. An insured can move from one claims made company to another, with each subsequent company picking up the retroactive dates of previous companies. Any new claims, even those that occurred while insured by a previous company, are reported to the company whose policy is in force at the time the claim is made. However, claims made companies do not intend to provide coverage for known claims that occurred under a previous carrier. The retroactive coverage is there to cover new claims that were unforeseeable at the time the insured switched carriers.
All 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, physicians, allied practitioners, and surgery centers 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 the old or new insurance company. This is how demand and incident triggers come into play.
When a medical professional liability insurance company issues a policy that has an incident trigger, any incident reported to it remains its responsibility even if the insured switches to another company. 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 second company, 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.
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 physician, entity, or allied practitioner has a choice (in some markets there may be no choice) between a demand and incident trigger policy, the incident trigger should be taken, no matter what the difference in price. That might sound like a huge generalization but it isn’t. 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 may have to wait 3-5 years for the Statute of Limitations to pass (longer if children are treated) before he or she can consider switching companies. During that time, 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, and it can cost considerable legal fees to invoke the Statute and beat back any challenges to it. 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. In some cases, particularly for “high risk” policies, long-term tails may not be available. Hence the blanket recommendation that demand trigger policies should be avoided at all cost unless there is no other viable choice.
In our next post, we will discuss reporting bad outcomes to insurance companies. Should all bad outcomes be reported? Should bad outcomes never be reported until a letter has been received from a patient’s lawyer? Stay tuned. We welcome questions on our topics and suggestions for topics you would like to discuss.