How To Get A Health Care Liability Policy To Pay Out Of A Health Insurance Policy

Transcription

1 HEALTH CARE PRACTICE CLAIMS-MADE ISSUES May CHANGING CLAIMS-MADE INSURERS: IT S MORE THAN THE RETROACTIVE DATE By Pamela K Haughawout, CPCU, ARM, RPLU Sadra Berkowitz, RN, JD Our cliets ad prospects tell us that they are cocered about potetial gaps i coverage if they chage from oe isurer to aother. Although the fear is justified, steps ca be take to mitigate the risks ad protect your corporate assets durig a chage i isurers. The followig examples have occurred durig actual chages. The use of specific isurers policy wordigs throughout this discussio is ot iteded to disparage ay isurer but oly to serve as a example. Other isurers use the same or similar wordig. EXAMPLE ONE A behavioral health facility that provided substace abuse ad metal health couselig o a ipatiet basis, discharged a patiet with appropriate outpatiet couselig arraged followig his discharge. Several weeks later a employee of the facility read i the local ewspaper that the former patiet had committed suicide by jumpig from a bridge. The facility reported the icidet to their curret isurer (Admiral), although o claim was made durig the policy term. At the ext reewal, the facility s broker sought alterative quotatios ad obtaied oe from The Philadelphia Isurace Compay that icluded a lower premium as well as more advatageous terms ad coditios. The broker was careful to esure that the Philadelphia quotatio icluded the same Retroactive Date used by Admiral. The Philadelphia policy, however, cotaied a exclusio for kow prior acts. This exclusio did ot appear to be a problem, sice the isured had bee diliget i reportig icidets to Admiral. Two years later the family of the deceased former patiet filed suit allegig that the facility should have moitored the patiet after his discharge ad, therefore, failed to reder adequate care. The icidet was reported to Philadelphia, who deied the claim based upo its Kow Prior Acts exclusio. The positio was difficult to argue, sice the isured did kow of the icidet ad had reported it to Admiral.

2 Admiral also deied the claim sice their policy did ot cotai a Icidet Reportig provisio ad was triggered oly by claims actually made agaist the isured ad reported to Admiral durig their policy term. Admiral s claim trigger was: We will pay o behalf of the Isured those amouts which you are legally obligated to pay as damages for a claim first made agaist you durig the policy period ad reported to us i writig durig the policy period, or a Exteded Reportig Period 1 EXAMPLE TWO A risk maager of a health pla has a primary professioal liability policy writte with a claims made ad reported coverage trigger; the coverage will likely be chagig to a differet isurer at reewal. The risk maager bega the tedious, but ecessary, process of aalyzig the claim ad icidet data for purposes of compilig a loss ru or laudry list to report. The fudametal questio for this risk maager is what exactly should or should ot be submitted uder the expirig claims made ad reported policy to (a) maximize coverage uder the expirig ad ew policies ad (b) miimize coverage gaps created whe movig to a ew carrier? Durig the risk maager s review, she leared of a subpoea received 18 moths earlier that she ow thought could be a cadidate for reportig. The subpoea came from a regulator seekig iformatio about a idustry marketig practice i which the health pla did ot egage. After the health pla s prompt respose to the regulator, othig further was heard. The risk maager did ot believe the subject of the subpoea would tur ito a claim agaist the health pla. THE DIFFERENCE BETWEEN OCCURRENCE, CLAIMS-MADE AND CLAIMS MADE AND REPORTED COVERAGE TRIGGERS Before the malpractice crisis i the mid-1970s, medical professioal liability policies were writte o a occurrece basis, meaig the wrogful act, occurrece or medical icidet (hereafter just referred to as a wrogful act) had to occur durig the policy period, but could be reported to the carrier at ay time, eve log after the policy expired. The duty to report a claim uder occurrece forms was ad typically still is as soo as practicable, immediately or promptly (hereafter referred to as as soo as practicable ). But the isurig agreemet does ot provide guidace as to whe the claim must be reported. A few isurers cotiue to offer policies with a occurrece coverage trigger; e.g., Medical Protective ad ProMutual. To better ad more promptly assess its liabilities for each specific policy year it wrote isurace, St. Paul rocked the malpractice world i 1976 by movig its medical professioal liability forms from occurrece coverage to a claims-made basis. This meat that a claim eeded to arise from a covered icidet or wrogful act committed after the policy s iceptio date (or its retroactive date if a start date other tha the policy iceptio date 2 Willis North America 5/10

3 had bee egotiated), ad made agaist the isured durig the policy period. The date the claim was made agaist the isured determied which policy applied. I practice, so log as a isured maitaied a cotiuous coverage relatioship ad the same retroactive date with a isurace compay, the isured had leeway i terms of which reportig period was as soo as practicable after the claim was made. A few isurers still offer pure claims-made coverage triggers. By early 2000, isurers usig a claims-made coverage trigger sought further certaity i determiig their policy period liabilities ad tighteed the timelie further for claim reportig. The ew policy prevailig today is the claims made ad reported form. This ew laguage meas that a claim must: Arise from a covered wrogful act committed after the policy s retroactive date Be made agaist the isured durig the policy period Be reported to the isurer durig that same policy period (or o some policies withi a specified day grace period after policy period expiratio) Some policies (mostly those from the Lodo ad Bermuda isurers) require a aual bordereau (listig of all claims ad potetial claims made ad reported withi a policy period) be delivered withi the grace period. This bordereau the becomes the defiitive claims made ad reported list uder that policy. CLAIMS-MADE TO OCCURRENCE We all uderstad that chagig isurers from a policy with a claims-made or claims made ad reported coverage trigger to a policy with a occurrece trigger ca leave a gap i coverage uless precautios are take to provide coverage for the Icurred But Not Reported claims. The isured must either: Purchase a Exteded Reportig Period (Tail) from the prior claims-made isurer or Negotiate with the ew (occurrece) isurer to provide coverage for the claims that occurred prior to their policy period but are made withi their policy period (Nose) Less well kow are the potetial cosequeces of chagig from oe claims-made isurer to aother. CLAIMS-MADE TO CLAIMS-MADE May policies with a claims-made or claims made ad reported coverage trigger, ad especially those that provide professioal liability for health care providers, cotai a retroactive date. It is importat to remember that a retroactive date fuctios as a exclusio. It excludes coverage for a icidet that occurred prior to the retroactive date. Whe chagig from oe claims-made policy to aother, there are two optios for prevetig a gap i coverage for the Icurred But Not Reported icidets: The ew isurer ca agree to hoor the same retroactive date as the prior coverage (Nose Coverage) The isured must purchase a Tail (Exteded Reportig Period) from the prior isurer Purchasig a Tail is a very costly alterative, sice Tail coverage is frequetly 200% or more of the last aual premium. I additio, some isurers do ot allow a isured to purchase a Tail if the isured volutarily chages from oe isurer to aother. O some policies a Tail may be purchased oly whe the isurer cacels or o-reews the coverage (Uilateral Electio). Whe purchasig claims-made coverage it is importat to determie whether the optio to purchase Tail coverage is uilateral (available oly if the isurer cacels or o-reews) or bilateral (available if either the isured or the isurer cacels or o-reews). Bilateral electio provisios are clearly preferable. Fially, may isurers offer oly a limited Tail of oe, two or three years. Uless a ulimited Tail is available, there may still be potetial ucovered icidets if the claim is made after the Tail expires. KNOWN PRIOR ACTS EXCLUSIONS It is ot sufficiet to simply purchase the same retroactive date from the ew isurer, sice most health care professioal liability policies cotai a exclusio for Kow Prior Acts. 3 Willis North America 5/10

4 A typical Kow Prior Acts Exclusio is: This isurace does ot apply to ay medical icidet, claim or suit arisig out of: A. Prior Acts Acts, errors or omissios of which a Isured had kowledge prior to the iceptio date of the policy period, or if, as of such date, a Isured could reasoably foresee a claim might result. 2 A alterative example ot oly excludes icidets that the isured actually kows about but also those that they should have kow, which is a much broader exclusio: Prior Kow Acts Ay Claim based upo, arisig out of or relatig to ay Medical Icidet that was kow or should have bee kow by a Isured, or was first reported to ay isurer, prior to the effective date of the policy period. 3 If the isured kew of a icidet, but o claim was made util the policy period that cotais such a exclusio, there will be o coverage available from the ew isurer. 4 I the maaged care E&O uiverse, a more problematic versio of the prior acts exclusio (because it is ot restricted to kowledge of proceedigs brought agaist the isured) reads: C.8. based upo, arisig out of, resultig from, or i ay way ivolvig ay fact, circumstace, situatio, trasactio, evet, Wrogful Act or series of facts, circumstaces, situatios, trasactios, evets or Wrogful Acts: (a) uderlyig or alleged i ay litigatio or admiistrative or regulatory proceedig brought prior to ad/or pedig as of the [Iitial] Iceptio Date stated i ITEM 2(a) of the Declaratios: (ii) with respect to which ay Isured, as of the Iceptio Date, kew or should reasoably have kow that a Isured would be made a party thereto; [italics supplied] 5 INCIDENT REPORTING TRIGGER The solutio to this problem is to report the icidet to the prior isurer before the policy expires. This is commoly called Laudry Listig ad it is importat that sufficiet time be allowed to research ay prior icidets ad report them to the isurer before the policy expires. However, this requires that the otice of a icidet to the prior isurer will trigger their coverage. This is commoly called a Icidet Reportig Trigger. A example of a icidet reportig trigger is: D. Duties i the Evet Of A Claim, Suit, or Medical Icidet 1. If durig the policy period, the First Named Isured shall become aware of ay medical icidet which may reasoably be expected to give rise to a claim beig made agaist ay isured, the First amed Isured must otify us i writig as soo as practicable Ay claim arisig out of such medical icidet which is subsequetly made agaist ay Isured ad reported to us, shall be cosidered first made at the time such otice was give to us. Receipt by us of a icidet report, icludig but ot limited to variace reports, will ot be cosidered a claim to us. 6 4 Willis North America 5/10

5 Not all claims-made policies have such a trigger ad chagig to a ew isurer poses a particular problem whe the curret isurer does ot allow for reportig of icidets. A Ati-Laudry Listig exclusio has ow appeared o at least oe isurer s policy, although the policy allows for icidet reportig. Such exclusios should be avoided. DEFINITION OF AN INCIDENT AND A CLAIM Broadly speakig, a expirig professioal liability policy will 1) defie what is reportable as a claim or potetial claim ad 2) require the claim or potetial claim to be reported i the same policy period it is asserted agaist the isured. The proposed policy will work to exclude burig buildigs that are ot yet claims. We fid that eve with subtle differeces, health pla ad hospital professioal liability forms yield similar reportig recommedatios. I Example Two above, a typical defiitio from a maaged care professioal liability policy is as follows: Claim meas a writte commuicatio received by a Named Isured s Risk Maagemet or Legal Departmet seekig damages or other civil, admiistrative or ijuctive relief, or threateig suit or arbitratio, icludig service of suit or istitutio of arbitratio proceedigs; 7 The subpoea does t fit ito the defiitio of claim it seeks iformatio, ot damages or other relief, ad it does t threate suit. A typical defiitio of a potetial claim o a maaged care liability form is: If, durig the effective period of the Policy or ay Exteded Reportig Period, you become aware of ay act, error or omissio that may be reasoably likely to give rise to a Claim for which coverage may be afforded uder this Policy, ad if you immediately give us writte otice of (1) the specific act, error or omissio, (2) the resultig damages, if kow, (3) how, whe, ad where the act, error, or omissio took place ad (4) the ames ad addresses of all kow participats ad available witesses, the ay Claim that may subsequetly be made arisig out of that act, error or omissio will be deemed to have bee made o the last day of the effective period of the Policy; provided, however, that the act, error or omissio must have occurred after the Retroactive Date stated i the Declaratios ad before the termiatio of this Policy. 8 Is the subpoea a potetial claim? Does the subpoea allege a act, error or omissio reasoably likely to become a claim? No, because it sought iformatio regardig a idustry practice i which the health pla did ot egage, ad the legth of time elapsed sice its iitial respose without regulatory follow-up suggests it is ot a target. Is there eough detail about the potetial claim (as defied i the policy) to be cofidet the curret isurer will ot dey for lack of specificity? TIME FOR REPORTING AN INCIDENT OR POTENTIAL CLAIM Most claims-made professioal liability forms require that potetial claims or icidets be reported withi the policy term i which the isured first becomes aware of the icidet. Icidets caot be reported withi a subsequet term or withi the Exteded Reportig Period (ERP or Tail), if oe is purchased. I the example of the subpoea received by the health pla, the reportig period may ot be ope if the health pla leared about the potetial claim before the last reewal, but did t disclose it durig last year s policy period. If it s a potetial claim the health pla did ot disclose before the reewal because it did t thik it would tur ito aythig, the bad ews is that courts ted to eforce the claims made ad reported laguage coditio, oly requirig occurrecetriggered isurers to show that their iterests were prejudiced by late reportig. Uder most policy forms, potetial claims ca oly be reported i the policy term i which they first become kow. The ext opportuity to report a potetial claim is whe it is actually asserted by the claimat if the Kow Prior Acts exclusio does ot prohibit coverage. A review of the potetial claim defiitio is importat; e.g., the Lexigto 0109 laguage above says ad if you immediately [emphasis supplied] give us writte otice 5 Willis North America 5/10

6 Does the subpoea ivolve a wrogful act that the isured kew or should reasoably have kow that it would be made a party to? Here is the treacherous groud: would a reasoable perso predict that the subpoea would tur ito a claim? If so, the ew carrier has grouds to dey a future claim ivolvig acts which were the focus of the subpoea. This may force reportig of the subpoea to the curret carrier ad risk the deial of the report of circumstace for lack of eough specificity, ad eve more likely, deyig the report as too late ot reported durig the policy year it was received. AVOIDING THE PROBLEM It is ecessary to allow sufficiet time for the followig review whe cosiderig a chage from oe claims-made isurer to aother. Chagig claims-made isurers is ot recommeded whe quotatios are received the day before the reewal. There is simply ot sufficiet time to review the quotatios ad to Laudry List the prior isurer if ecessary. Be clear i your claim reportig protocol that today s professioal liability policies are writte o a claims made ad reported basis. This meas that both claims ad potetial claims (to the extet you opt to report potetial claims) must be reported i the same policy year that the claim or potetial claim becomes kow to you. Pla i advace ad specify that all uderwriters provide quotatios i sufficiet time to aalyze the differeces i the quotatios. for reportig: delete reasoably believed i favor of kew would give rise to a claim. Become coversat with the Tail or Exteded Reportig Provisios of the expirig policy. Determie if you have the right to purchase a Tail (Exteded Reportig Edorsemet), if ecessary. Are the electio provisios for the Exteded Reportig Provisios uilateral or bilateral? What is the cost of the Tail? What is the duratio of the Tail? Receive the quotatios with sufficiet time to Laudry List the curret isurer. Discuss with your brokerage team ad third-party admiistrator (if applicable) ay kow icidets ad determie whether or ot the icidets have bee reported to the expirig isurer. Review the expirig coverage to determie if the policy has a icidet reportig trigger. Always make sure to receive a detailed writte proposal which icludes a specime copy of the policy form as well as the full text of all quoted edorsemets. Make sure that the quotatio from the ew isurer uses the same retroactive date as the prior coverage. Determie if the ew isurer has a Kow Prior Acts exclusio. If a Kow Prior Acts exclusio exists, add a Ameded Notice of Loss provisio specifyig that the isured will be costrued to have otice of a icidet oly whe it is received by the risk maager, geeral cousel or executive officer. The more limited the Ameded Notice of Loss, the more advatageous it is. The best Ameded Notice of Loss specifies a sigle idividual or positio ad limits their kowledge to icidets that they kew would give rise to a claim. If possible, do ot agree to prior acts exclusioary laguage that cotais a subjective stadard If the policy has a icidet reportig trigger, report all kow icidets to the curret isurer prior to the expiratio of the policy. Reportig should be doe i a fashio that will guaratee that the report: Reaches the isurer prior to the expiratio date ad time The method of trasmissio geerates a receipt, such as certified mail, Federal Express trackig receipt, etc. If a kow icidet lacks adequate specificity to report as a potetial claim or does ot meet the defiitio of a potetial claim, discuss the icidet with the ew isurer. A ew isurer may be more flexible i order to obtai a ew 6 Willis North America 5/10

7 piece of busiess. If, oce you ve disclosed the potetial claim to the ew isurer, the uderwriter wats to attach a subjectivity to the quotatio requirig the potetial claim be reported to the expirig carrier, try to secure the ew carrier s agreemet as follows: If the expirig isurer rejects the potetial claim for lack of specificity, the ew carrier will accept the potetial claim report Not exclude as previously reported to aother carrier If the expirig policy does ot cotai a icidet reportig trigger ad the cliet kows of icidets that may give rise to a claim i the future, you should explore three alteratives: 1. Exteded reportig period purchase from the expirig carrier 2. Reportig of kow potetial claims to the ew carrier 3. Not chagig isurers, ad cocurretly providig a clear explaatio to your corporate maagemet regardig why chagig isurers may result i a uisured claim SUMMARY Your Willis brokerage team is available to review each of these items with you ad to act as your advisor through the trasitio from oe isurer to aother. We will provide the kowledge expertise to make the trasitio smoothly. CONTACTS Pamela Haughawout pamela.haughawout@willis.com Sadra Berkowitz, RN, JD sady.berkowitz@willis.com There are six iterrelated policy provisios that must be carefully reviewed before chagig from oe claims-made policy to aother. Kow Prior Acts Exclusio Ameded Notice of Loss Potetial Claim Reportig Provisio Retroactive Date Defiitio of a claim ad/or potetial claim Exteded Reportig Provisios It is ot sufficiet to simply arrage for the ew isurer to pick up the same retroactive date as the prior isurer. All provisios must be carefully reviewed to esure that there will be o gap i coverage. 1 Admiral Isurace Compay, Medical Professioal Liability Isurace Claims Made [EO ] 2 Lexigto Isurace Compay, Healthcare Professioal Liability Claims Made Coverage Part [79225 (07/03)] 3 Steadfast Isurace Compay, Health Care Umbrella Liability Policy, Health Care Professioal Liability Claims Made [U-HCU-703-A CW (04/03)] 4 Special ote should be made of the uqualified word Isured i both exclusios. Employees are Isureds uder most health care professioal liability policies. Therefore, if a urse kew of a medical icidet but did ot report it, there may be o coverage. Addig Ameded Notice of Loss Wordig is always advisable. 5 Darwi Maaged Care Professioal Liability Claims Made H Lexigto Isurace Compay, Healthcare Professioal Liability Claims Made Coverage Part [79225 (07/03)] 7 Lexigto Isurace Compay, Maaged Care Errors & Omissios Claims Made Coverage Part Ibid The observatios, commets ad suggestios we have made i this report are advisory ad are ot iteded or should they be take as medical/legal advice. Please cotact your ow medical/legal adviser for a aalysis of your specific facts ad circumstaces. 7 Willis North America 5/10