Glossary of Terms

Absolute Liability

Liability regardless of fault.

Annual Aggregate Limit (claims made)

The maximum amount the carrier will pay for all claims arising from incidents that occurred and were reported during a given policy year.

Annual Aggregate Limit (occurrence)

The maximum amount the carrier will pay for all claims arising from incidents that occurred during a given year of insurance.

Assessability

A policyholders obligation to pay additional money, in excess of premiums, to cover past company losses for which reserves have proven to be inadequate. Trust arrangements and joint underwriting associations are generally assessable

Claim

A written notice, demand, lawsuit, arbitration proceeding or screening panel in which a demand is made for money or a bill reduction.

Claims-Made Coverage

The most common type of professional liability coverage available, it provides protection for claims that occur and are reported while the policy is in effect (coverage period). Within the conditions of a claims-made policy, a claim must be reported to the carrier in writing by the insured. Tail coverage, or a Reporting Endorsement, provides coverage for claims that occur during the coverage period but are reported after the policy terminates.

Date of Incident

The date on which a situation of alleged malpractice took place. Also called “date of occurrence.”

Date of Reporting

The date of reporting is the date on which the incident was reported to the insurance company.

Declaration

Also called “Declarations Page,” this portion of the policy states information such as the name and address of the insured, the policy period, the amount of insurance coverage, premiums due for the policy period, and any coverage restrictions.

Deductible

Provides that all loss payments are reduced by the amount of the underlying deductible with no other considerations.

Defense Cost

Inside – Such policies are called “defense within limits,” “wasting,” “self-consuming” or “self-liquidating” policies, because every dollar spent on defense is one less dollar available to settle the case or pay a judgment. For example, if a policy provides coverage of $1 million, that sum will be reduced by every dollar spent on defense costs. If $1 million is spent on defense, then nothing will be left of the policy. The policy will be completely liquidated, even if the litigation is in progress. Outside – Other companies will pay all costs of defending a lawsuit, including the costs of your defense counsel selected by the Company. The payment of defense costs does not reduce your limits of coverage.

Domiciled

Refers to the state in which an insurance company receives a license to operate. The company is then regulated by that state’s Department of Insurance.

Earned Premium

The portion of premium that applies to an actual coverage period. Insureds usually pay a calendar quarter or more in advance of the actual coverage period; the advance payment is initially unearned and becomes earned incrementally during the ensuing coverage period.

Economic Damages

Out-of-pocket damages, such as incurred medical expenses, lost wages, etc.

Endorsement

An amendment, sometimes referred to as a rider, added in writing to an insurance contract or policy.

Extended Reporting Coverage Tail

Extension of coverage on a claims-made liability policy after its expiration.

Hammer Clause

A provision included by insurers in some consent-to-settlement clauses to encourage the insured to accept a recommended settlement offer. It provides that if the insured refuses a settlement offer recommend by the insurer, the insurer’s liability is limited to the amount of the recommended settlement offer. Example: The insurer recommends a settlement offer of $50,000. The insured refuses the offer, and the claim results in a judgment of $100,000 against the insured. The insurer will only pay $50,000, less any deductible. The insured is responsible for $50,000, plus any deductible amount.

Hold-harmless Clause

A hold-harmless clause (also known as an indemnification clause) attempts to shift liability from one party to another (e.g., from an HMO to an employed physician).

Incident

An occurrence that the plaintiff claims has led to culpable injury.

Indemnity

An insurance company’s payment to a plaintiff in settlement or adjudication of a claim.

Informed Consent

An agreement obtained voluntarily from a patient for the performance of specific medical, surgical or research procedures after the material risks and benefits of these procedures and their alternatives have been fully explained in non-technical terms.

Insurance Gap

When a physician has professional liability insurance under a claims-made policy, once the coverage period has expired without renewal, claims that have not yet been made and reported to the carrier (insurance company) during the “active” policy period are not covered. In such cases, a physician is said to be “bare” (uninsured), unless he or she has purchased an extended reporting endorsement (tail coverage) from the former carrier, or has obtained “prior acts” (nose) coverage from a new carrier.

Limit

The maximum amount paid under the terms of a policy. A professional liability insurance policy usually has two limits, a per-claim limit and an annual aggregate limit.

Locum Tenens

A substitute physician who temporarily takes the place of a named insured policyholder or physician member of a medical group. This coverage may be contingent upon the policyholder or member physician not practicing during the period in which the Locum Tenens coverage is in effect.

Malpractice or Professional Negligence

An abrogation of a duty owed by a health care provider to the patient; the failure to exercise the degree of care used by reasonably careful practitioners of like qualifications in the same or similar circumstances. For a plaintiff to collect damages in a court of law, the plaintiff’s attorney must show that the provider owed the patient a duty and that the provider’s violation of the standards of practice caused the patient’s injury.

Mature Premium

A step rating system may be used to set premiums for its claims-made policies. The mature premium is the fee a policyholder will pay during the year the policy matures, generally the 4th through the 7th year. The mature rate reflects the maximum exposure (typically 4 years or greater) that the carrier is covering and will typically remain at this level, barring any underwriting changes, for the subsequent renewals.

Non economic Damages

Pain, suffering, inconvenience, loss of consortium, physical impairment, disfigurement, and other non-pecuniary damages.

Non-assessable

A condition under which an insurance company is sufficiently sound so that policyholders are not obligated to pay additional money for past losses for which reserves are inadequate.

Nose Coverage

Nose coverage covers claims first made against the physician after the effective date of coverage on the policy. To be covered, such claims must arise out of the physician’s acts or omissions prior to the policy’s effective date and after its retroactive date. (Both dates are shown on the declarations page of the policy.) A final note: Nose coverage is also known as retroactive coverage or prior acts coverage.

Occurrence Insurance

A type of policy in which the insured is covered for any incident that occurs (or occurred) while the policy is (or was) in force, regardless of when the incident is reported or when it becomes a claim. Occurrence insurance for medical liability coverage is rarely offered today because of the difficulty in projecting long-term claims costs under this type of policy.

Policy

The contract between an insurance company and its insured. The policy defines what the company agrees to cover for what period of time and describes the obligations and responsibilities of the insured.

Policy Term

The length of time for which a policy is written.

Premium

The amount of money a policyholder pays for insurance protection. The amount is deemed necessary to pay current losses, to set aside reserves for anticipated losses, and to pay expenses and taxes necessary to operate the company during the time period for which the policies are in force. Premiums allow the company to generate a reasonable profit that reinforces future solvency and contributes to the company’s growth. In the case of a reciprocal insurer, the premiums allow the company to offer insurance to new applicants without the need for additional capital contributions.

Punitive Damages

Also called “Exemplary Damages.” Optionally covered by professional liability insurers. A few states require that punitive damages be covered. Other state laws prohibit insurance companies from covering punitive damages because such damages are intended to punish the defendant for willful, fraudulent, oppressive, malicious, or otherwise outrageous behavior that should not be covered by insurance.

Rate Maturation

In the early period of coverage (typically the first four to seven years), claims-made insurance rates rise annually until they are considered “mature.” Increasing the premium is necessary because the longer the physician is insured, the greater the potential for a claim. That is due to the delay between incidents occurring and patients filing claims from those past incidents.

Retroactive (Prior Acts) Coverage

Under a claims-made policy, this coverage provides insurance for claims arising from incidents that occurred while a previous claims-made policy or policies were in effect, but that were not reported until that policy (or the last in a succession of policies) was terminated. With retroactive coverage, the new policy covers such claims. With such coverage, purchase of tail coverage from the previous carrier is not necessary.

Risk Management

A systematic approach used to identify, evaluate, and reduce or eliminate the possibility of an unfavorable deviation from the expected outcome of medical treatment, and thus prevent the injury of patients due to negligence and the loss of financial assets resulting from such injury.

Tail Coverage

This supplemental insurance covers incidents that occurred during the “active” period of a claims-made policy but are not brought as claims against an insured, nor reported to the insurer, by the time the claims-made policy has been terminated. Needed at various times including when leaving a claims-made carrier, upon the decision to change claims-made carriers, at the time of retirement, or due to death or total disability of the member. Tail coverage is purchased from an insured’s previous claims-made carrier and is generally 125% to 250% of the prior year’s premium.

Unearned Premium

That portion of a premium that is paid in advance of a coverage period. Insureds usually pay a calendar quarter or more in advance of an actual coverage period; the advance payment is initially unearned and starts to become earned on the first day of the coverage period and incrementally thereafter during the ensuing coverage period.

Vicarious Liability

Liability for the acts of someone else.

Apply for Coverage Now.