Policy limits are an important part of medical malpractice insurance. Setting these limits appropriately is essential for protecting medical professionals and their practices. Here we’ll look at what policy limits are, why they matter, how they are determined, and the implications of setting these limits too high or too low.
What are policy limits?
Policy limits refer to the maximum amount a malpractice insurer will pay for claims under an insurance policy. For example, a $1,000,000/$3,000,000 limit policy will offer up to $1,000,000 per occurrence, with an aggregate limit of $3,000,000 for all occurrences during the policy period, which is usually one year.
Why do policy limits matter?
Policy limits define the available coverage for the Member. In the case of medical malpractice, these limits determine how much protection a medical professional has if a plaintiff claims negligence or malpractice. If a claim exceeds the policy limits, the provider is personally responsible for the excess amount. That could lead to real financial stress.
How are policy limits set?
Landing on the right policy limit involves several factors:
- Value of assets: Providers with considerable personal and business assets may need higher policy limits to protect those assets against a large claim.
- Risk exposure: Some specialties, such as surgery and obstetrics, pose a higher risk of a claim. They typically require higher limits due to the higher likelihood of substantial claims.
- Budget: While higher limits provide more protection, they also come with higher premiums. It’s important to balance coverage needs with ability to afford the premiums.
- Contractual obligation: Providers might have a Professional Service Agreement that indicates limit levels they are required to carry.
Gaining guidance from other professionals—such as an experienced insurance broker, wealth management advisor, or attorney—can help providers navigate these factors and choose limits that properly match a provider’s risk profile and financial situation.
What happens if a claim exceeds your policy limits?
If a claim exceeds policy limits, the provider is liable for that additional amount. For example, if a physician has a $1,000,000 policy limit and faces a $1,500,000 verdict, the provider will need to cover the additional $500,000 out of pocket. This outcome highlights the importance of selecting appropriate policy limits.
Professional Services Agreements
In some instances, policy limits are subject to a provider’s professional service agreement with the hospital(s) with which they are contracted. While professional service agreements between provider groups and hospitals and other healthcare institutions are common, their terms and conditions can vary. It is important to be aware of certain elements within the agreement that could have a potentially serious financial impact upon your practice in the event of a claim.
Availability
Notably, the marketplace has seen some carriers pull back on their limit capacity, thereby ceasing to offer limits at certain levels. For instance, some carriers no longer offer $5,000,000 limits. Depending on the desired limits, this might necessitate a change in insurance carrier for an entity or provider. Insureds benefit from the careful selection of a carrier with stable, broad offerings that can accommodate an organization as its needs evolve over time.
Conclusion
Choosing the appropriate policy limit is an important decision, as it balances protection with premium costs, thus helping providers protect their assets and practice. But while higher limits provide more coverage, they can also increase the amount sought by a plaintiff in a lawsuit. Providers must consider their individual circumstances to make knowledgeable decisions about their coverage.
By understanding and thoughtfully selecting policy limits, medical professionals can better protect themselves against the financial repercussions of malpractice claims. If you have questions about policy limits or need help choosing the right coverage, discuss your priorities and considerations with your broker, financial advisors, or carrier to clarify your specific needs for yourself.
Note: Physicians Insurance A Mutual Company does not provide legal or financial advice on the selection of liability limits.