Ending a practice relationship doesn't end liability

Whether a physician is divorcing from a medical practice or the medical practice is terminating a physician, both parties should ensure that professional liability insurance after the breakup is addressed before the separation.

There are two main types of insurance policies for professional liability: claims-made and occurrence-based coverage.

For claims-made coverage, the insurance carrier will only cover claims that are made while the physician is employed by the practice. The physician would need to purchase a tail policy to ensure coverage for professional liability claims made after the physician left the former practice.

However, if the physician's new employer has the same insurance carrier as the physician's former employer and is located within the same state, there may be no lapse in coverage, and thus no need for a tail policy.

If a physician had occurrence-based coverage with his former practice, a liability claim for an act that occurred during the employment period, regardless of when the claim is ultimately made, will be covered by the insurance policy. With this kind of coverage a physician would not need a tail policy.

Most medical practices maintain claims-made professional liability insurance coverage.

Who pays for tail coverage?

By the time a doctor is readying to leave a practice, the issue of tail coverage should have been clearly predetermined in the departing physician's employment agreement. However, one of the most debated issues I see among my clients is who is paying for the tail policy.

I had a physician client who informed the medical practice that he was resigning and accepting employment by another practice in a neighboring city. After his exit, his former practice withheld his final paycheck and issued him a five-figure bill for the cost of a tail policy.

The physician was surprised. But he shouldn't have been. His employment contract read:

"Upon termination of Physician's employment hereunder, the Practice may, in its sole discretion, purchase tail coverage on behalf of the Physician. In the event the Practice purchases tail coverage, the Physician shall be solely responsible for the cost of such policy and the Practice shall deduct the full cost of such policy from monies otherwise due to Physician hereunder. If monies otherwise due to Physician hereunder are less than the cost of such policy, Physician shall immediately reimburse the Practice, in full, for the excess amount."

The practice exercised its contractual right and purchased tail coverage for which it believed the departing physician would be responsible for paying.

Unbeknownst to the former practice, the physician's new employer maintained professional liability insurance with the same insurance carrier. The doctor had continuing coverage, and therefore there was no need for a tail policy. Unfortunately, his contract did not provide for this possibility.

The agreement should have addressed the physician's ability to maintain seamless coverage with a subsequent employer, and thus avoid the cost of tail coverage.

While professional liability insurance may not be the first thing on a physician's mind when joining a practice, it most definitely is a key concern when leaving a practice. In order to prevent unexpected surprises, be sure to have the liability insurance provision of your employment agreement solidified such that all parties are on the same page in the event of a physician's departure, or the dissolution of the practice itself.