The glossary provides a list of terms and definitions commonly used in the malpractice insurance industry.
It is important to understand the terminology used within the malpractice insurance industry. By understanding the details of the policies, you are able to make a better decision regarding the purchase of your malpractice insurance.
Application
A written statement by a prospective insured that provides information about the applicant to be used in determining insurability and pricing.
Claim
In common parlance, any demand for compensation. What constitutes a claim that must be reported to an insurance company varies but always defined in the policy.
Claims-Made Insurance Policy
An insurance policy that provides coverage for claims arising from incidents that both occur and are reported to the insurance company while the policy is in force. A claims-made policy is in force from the starting date of the initial policy period (the retroactive date) and continues in force from that date through each subsequent renewal. When a claim-made policy is terminated, future claims arising from incidents that occurred during the policy period are not covered. However, the policyholder normally has the right to purchase an extended reporting endorsement aka tail. See tail this section.
Date of incident
The date on which an alleged incident of malpractice occurred.
Date of reporting
The date on which an incident is reported to an insurance company.
Declaration
A component of an insurance policy, also known as a "face sheet or dec page." The declaration, usually the first page of the policy, personalizes the policy by specifying certain information.
Endorsement
An addition to an insurance policy that changes the original policy provisions in some manner; also called a rider, policy change or amendment.
Exclusions
The component of an insurance policy that sets forth the circumstances under which the policy will not respond.
Experience Rating
The practice of basing insurance premiums on past loss history of a given applicant. Common occurrence in large accounts with $100,000 premium or more.
Insurance
A contractual relationship when one party (an insurance company or underwriter), in consideration of a fixed sum (a premium), agree to pay on behalf another (an insured, or policyholder) for covered losses, up to the limits purchased, caused by the designated contingencies listed in the policy.
Insured
The party or parties covered by an insurance policy. Also called a policyholder.
Joint Underwriting Association (JUA)
A government-administrated risk-pooling arrangement established by law in a number of states to provide professional liability insurance to healthcare providers. A JUA is structured to be financed by assessments against its participants, but typically also has the authority to assess property and casualty insurers licensed to do business in the state in the event of a deficit.
Limits of Liability
The maximum amount an insurer will pay out under the terms of a policy. Professional liability policies typically specify both a per-occurrence limit and an aggregate limit for all claims incurred during the term of a contract, e.g., $1 million (per occurrence)/$3 million (aggregate).
Malpractice
Failure to provide professional services with the skill usually exhibited by responsible and careful members of the profession, resulting in injury, loss, or damage to the party contracting those services. Though accountants, lawyers, and other professionals can be charged with malpractice, the term is most commonly associated with medical professionals (e.g., doctors, nurses, hospital technicians.) Most medical malpractice suits are for negligence on the part of medical professionals in providing expected level of care. In recent decades, partially as a consequence of medical costs, there has been a considerable expansion of medical malpractice suits. This has led to vastly higher rates for malpractice insurance, and, some observers contend, a "defensive" approach to medicine in which medical personnel are unwilling to order any potentially risky procedures, and protect themselves against subsequent legal action through excessive patient testing.
Mutual Insurance Company
A company organized as "cooperative" activity by a group of persons, whereby all participants share the losses and profits of the business. A mutual company has no formal stockholders or capital stock.
Negligence
In law, the breach of an obligation to act with care, or the failure to act as a reasonable and prudent person would do under similar circumstances. The obligation to act with care may arise out of a contract, as in the duty of a common carrier to exercise a high degree of care in preserving from injury goods or persons being transported. In all noncontractual situations the standard applied to determine the existence of negligence is the presumptive behavior of the "reasonable, prudent person." Injury that results despite such a reasonable degree of care or from circumstances beyond human control (see, e.g., act of God) is not compensable. It is usually the function of the jury to determine whether the act in question was negligent and the obligation of the plaintiff to demonstrate the negligence of the defendant by a preponderance of the evidence.
Occurrence Policy
A type of professional liability insurance policy in which the policyholder is covered for any incident that occurs during the term of the policy, regardless of when a claim arising from the incident is made. Occurrence policies have been largely supplanted by claims-made policies in the medical professional liability insurance market since 1976.
Patient Compensation Fund
A fund established by law in a few states that pays benefits to patients injured in the course of medical treatment. Benefits may be awarded on either a fault or no fault basis, depending on the state. The fund's benefits may either supplement the payment made by a defendant in a medical malpractice claim or be the primary compensation, again depending on the state.
Policy
The contractual agreement between an insurance company and its insured. The policy sets forth the rights and obligations of both parties to the agreement.
Premium
The amount of money an insured pays for an insurance policy. Rates are calculated by the insurance company's underwriters to bring in enough money to establish reserves for future losses; pay current losses; cover the company's operating expenses, including the cost of defending claims; and, if the company is organized as a profit making business, generate a profit.
Prior acts
Incidents that may have occurred, but have not yet been filed as claims, before the on set of the company-insured relationship. Companies typically require a new insured to purchase supplemental coverage (either tail or prior acts coverage) to protect against claims arising from prior acts.
Prior-Acts Coverage
A supplement to a claims-made insurance policy that may be purchased from a new carrier when a physician changes carriers and had claims-made coverage with a previous carrier. A prior-acts policy, also known as nose coverage, covers incidents that occurred before the beginning of the new insurance relationship but for which no claim has yet been made. Prior-acts coverage is an alternative to an extended reporting endorsement, also known as tail coverage, which is purchased from the original carrier when a change is made.
Reinsurance
A contract in which one insurance company buys insurance from a second insurance company (the reinsurer) to cover part of the risk the first company has insured. The amount of risk a company reinsures varies from carrier to carrier.
Risk-Purchasing Group (RPG)
A group of similarly situated persons or entities that are permitted under federal law to organize across state lines to buy insurance. The carrier that sells insurance to the group must be licensed in at least one state but need not be licensed in every state where a member of the group resides.
Risk-Retention Group (RRG)
A group of similarly situated persons or entities that are permitted under federal law to organize across state lines for the purpose of pooling their liability risk and self insuring. If the group is licensed in one state, it is permitted to solicit and sell insurance nationwide without fulfilling each state's licensure requirements.
Tail Coverage or Extended Reporting Period
A supplement to a claims-made policy that provides for any incident that occurred while the claims-made insurance was in effect but had not been brought as a claim by the time the insurer-policyholder relationship terminated. Tail coverage, also known as an extended reporting endorsement, is generally necessary whenever an insured covered by a claims-made policy changes carriers, retires, becomes disabled, or dies.
Underwriting
The process by which a company evaluates and classifies risks and measures and calculates the cost of protection, within the framework of the rules, rates, and coverage forms that are permitted by law in a particular state.