Healthcare Professional Insurance Company, (HPSI) has put together a healthcare professional’s guide to medical professional liability terminology. If you are a Healthcare Professional this is a glossary of terms that will help you navigate all the terms used in your professional liability policies. By no means is this a complete list of all terms used for healthcare professionals, but it will help you have a better understanding of the terms and language used in most healthcare professionals liability insurance.
THE HEALTHCARE PROFESSIONAL’S GUIDE TO MEDICAL PROFESSIONAL LIABILITY TERMINOLOGY: GLOSSARY OF TERMS
The act of intentionally and permanently giving up, surrendering, deserting, or relinquishing the pursuit of a legal action.
A specialist in the mathematics of risk, especially as it relates to insurance calculations such as premiums, reserves, and dividends.
Adjusting and Other Expenses
(See also Unallocated Loss Adjustment Expenses)
Expenses incurred by the insurance company to resolve claims which are not attributable to specific claims, such as rent, salaries, and utility costs.
The amount of coverage purchased to cover indemnity amounts for the combined number of reported events/claims for each policy period (i.e., $1 million for each incident, $3 million on an aggregate basis).
Allocated Loss Adjustment Expenses (ALAE)
(See also Defense and Cost Containment Claim Expenses)
Allocated loss adjustment expenses include expenses incurred by the insurance company in the investigation, adjustment, or defense of specific claims. Regulators now refer to this as defense and cost containment expenses.
Alternative Dispute Resolution (ADR)
A method of claim resolution outside the normal court system, such as mediation or arbitration. The objective of ADR is to promote more expeditious resolution of claims. Claims resolved in this manner can be less costly on the system by avoiding high administrative fees. Most ADR programs are voluntary and are provided through mediation, arbitration, or settlement conferences.
A legal term of art that describes a civil claim an insured may have against an insurance company. It is often related to a breach of the obligation inherent in all contracts dealing with other parties in good faith and with fair dealing—such as in paying claims or issuing a cancellation under an insurance policy.
Primary insurance provides coverage for which liability attaches immediately upon the filing of a claim. It is “first dollar” coverage, often sold at $1 million/$3 million policy limits.
A type of alternative dispute resolution in which the decision or outcome is made by a neutral third party (or panel) through arbitration proceedings. The acceptance of the outcome is obligatory for both the defendant and the plaintiff.
Compensation Several states have laws establishing a patient compensation or medical professional liability catastrophe coverage fund. This provides an additional layer of coverage to the insured over the basic policy limits of the insurer, similar to excess coverage.
An act, omission, or breach in the standard of care that directly produces an event/incident and without which the event/incident would not have occurred.
Certificate of Merit
A document signed by a practitioner stating he/she has reviewed the available facts of an event/incident and agrees the standard of care has been violated. Some states require a certificate of merit be filed with any MPL lawsuit.
Generally defined as any written or oral demand made by or on behalf of a patient/claimant for compensation in the form of money and/or services. Policy provisions require insureds to notify the insurance company immediately upon notice of a claim. A lawsuit is a claim (see lawsuit).
A patient, or patient’s representative, who makes a claim for alleged malpractice. Claim Reserve Estimated costs to fund claims the insurance company is aware of but have not yet been resolved. This does not take into account incurred but not reported claims.
A policy coverage type that covers an insured against any claim made (reported) at or after the policy retroactive (retro) date and before the policy expiration date.
Collateral Source Rule
A rule stating evidence that an alleged victim has been compensated by a third party for a portion of their losses may not be introduced in court. The defendant must pay the full monetary value of the injury they are alleged to have caused. The rule potentially allows a plaintiff to “double dip”—collect overlapping damages from different sources for the same injury.
A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations. A ratio below 100 percent indicates the company is making an underwriting profit. A ratio above 100 percent means it is paying out more money in claims than it receives from premiums.
Consent to Settle
A company may not settle a claim on an insured’s behalf without first obtaining the insured’s written consent.
A condition, loss, or act expressly not covered by the policy, which may appear on the declarations page or in the policy jacket. For example, coverage for the performance of certain high-risk procedures may be excluded.
Covered Defense Costs
Any expenses paid in the process of adjudicating a claim. Costs generally include defense attorney costs, expert witness fees, and other costs associated with court costs, securing medical records, etc.
Losses claimed by the claimant/plaintiff as a result of (alleged) negligence. Damage Cap Statutory law, restricting the monetary recovery of the plaintiff for a specified injury, such as pain and suffering— or by restricting the total amount of recoverable damages.
Declaration Page (Coverage Summary)
This is the portion of an insurance policy that contains coverage data specific to the individual insured, such as name, address, policy limits, and premiums charged.
A policy that requires the insured to assume partial payment of indemnity and/or defense costs, usually from the first dollar to a predetermined limit.
Defense and Cost Containment Claim Expenses (See also Allocated Loss Adjustment Expenses)
Defense and cost containment expenses include those expenses incurred by the insurance company in the investigation, adjustment, or defense of specific claims.
The practice of diagnostic or therapeutic measures conducted primarily as a safeguard against possible medical professional liability exposure
A fact-finding process—conducted through oral interrogations of parties and witnesses—in which both the defense and the plaintiff learn of evidence and witnesses.
Direct Written Premium
The total premiums received by the insurance company without any adjustments for the ceding of any portion of these premiums to reinsurers.
After the reporting of a lawsuit, this process focuses on obtaining facts and/or securing relevant evidence regarding the allegation to establish whether a duty existed and whether an alleged breach was a proximate cause of the patient’s injury/damages.
Dividends are paid to policyholders as a return of a portion of premiums paid by policyholders—when it can be determined the insurance company does not need the funds to pay claims or operating expenses.
Direct losses, such as medical expenses, lost wages and other expenses, incurred as a direct consequence of the injury resulting from the acts of the defendant.
Any event that caused a possible error or omission the policyholder feels has the potential for litigation. The policyholder should report such events/incidents and the surrounding circumstances of the insurance company as soon as possible.
Excess insurance provides coverage with liability attaching only after a predetermined amount of primary coverage has been exhausted. Excess coverage is only available if the insured maintains the underlying primary insurance coverage.
Exclusions (Policy Coverage)
Certain actions (such as specific procedures or practice at specific locations) for which an insurance company will not defend or indemnify a practitioner.
A medical expert hired by either the defense or the plaintiff to testify as to the appropriate standard of care.
A type of reinsurance in which the insurance company cedes risks under individual policies to the reinsurer— rather than all risks used to reduce exposure to loss on an individual risk basis. Frivolous Lawsuit An insufficient claim, not supported by the facts; a lawsuit lacking a legal basis or legal merit.
Gross Written Premium
The collective value of all policy premiums written or sold during an accounting period, such as a calendar or fiscal year.
This coverage is extended to multiple physicians with one policy, covering incidents reported on behalf of any physician named on the declaration page of the policy.
A clause that allows the insurance company to decide the point at which a case should be settled. If an insured does not agree with the insurer’s decision to settle, the insurer will proceed with the case—but will limit its coverage to the amount of their originally proposed settlement. If the award is more than that amount, the insured is responsible for the amount above the original settlement offer.
This is the date on which the alleged injury took place. It is also referred to as the occurrence date. Claims-made coverage claims must be reported during the time period in which the policy is in force. Under an occurrence policy, this date is used to determine coverage.
Incurred But Not Reported (IBNR)
This term refers to an estimate of the number and/or value of claims that have occurred but not yet been reported to the insurance company. This projection is developed by the company’s actuaries and is based on historic information of loss experience. IBNR values are estimated for indemnity amounts and allocated loss adjustment expenses.
Expenses that have and may not yet have been paid by the insurance company in the defense of claims and suits. Includes the amounts already paid and those expected to be paid. Incurred Losses Losses that have occurred within a stipulated time period, whether paid or not.
A contractual obligation by which one person or organization agrees to secure another against loss or damage from specified liabilities.
Money paid to a claimant/plaintiff for alleged and/or adjudicated damages incurred in a resolution of a claim. The indemnity payment includes an amount equal to the economic recovery for expenses already incurred or expected to be incurred, and may also include non-economic damages. Non-economic damages are paid to compensate an individual for physical and emotional pain, suffering, mental anguish, and other abstract non-monetary losses. Individual Coverage This is coverage rendered to one practitioner with one policy and covers the incidents only for that practitioner.
A patient’s choice about a medical treatment or procedure, made after a doctor or other healthcare provider discloses whatever information a reasonably prudent provider in the medical community would give to a patient regarding the risks involved in the proposed treatment or procedure.
The termination of a court case despite the plaintiff’s objection. Involuntary dismissal is made by a defendant through a motion for dismissal—which is granted by the court on grounds that the plaintiff is not prosecuting the case—is not complying with a court order, or is not complying with the
Rules of Civil Procedure.
A lawsuit (Complaint) An action or proceeding brought before a court to recover money and/or services for the plaintiff. The action generally alleges a negligent act or omission on the part of one or more defendants.
Legal Expense Reimbursement
An insurance product which may be offered by insurance companies to cover defense expense costs associated with investigations or government proceedings related to fraud and abuse.
Limits of Liability
The maximum amount of insurance under a policy that can be paid to the policyholder or another party for a covered loss.
Locum Tenens Coverage
Coverage extended to an additional insured on a policy in cases in which that practitioner is providing temporary medical coverage for the policyholder.
The ratio of incurred losses and loss adjustment expenses to earned premiums.
Mature Rate (Mature Premium)
The fee a policyholder will pay during the year the policy matures, generally the fifth year. The first level premium is substantially lower than a mature premium and is designed for policyholders new to the practice and therefore have no claims history.
A type of alternative dispute resolution in which the parties and their attorneys, as well as an independent mediation specialist, are brought together to discuss the merit of the case and appropriate compensation if any.
An alleged departure from the standard of medical care including errors in diagnosis, treatment, a performance of procedures, supervision, or timeliness that resulted in injury to a patient.
A rating by an insurance company based on an individual doctor’s risk. A merit rating system can provide for a reduction in premium to insureds who do not have a claim filed—or payment made against them for a predetermined amount of time.
A lawsuit meriting a legal victory; having legal worth.
MICRA Medical Injury Compensation Reform Act of 1975 (California). Among other things, MICRA places a $250,000 cap on non-economic damages (pain and suffering); limits attorney contingency fees; allows periodic payments of future damages in excess of $50,000; and establishes a statute of limitations of three years from an injury or of one year from the discovery of an injury and its negligent cause.
Net Written Premium
The gross premium is written by the insurance company minus the reinsurance ceded to other companies.
A type of alternative dispute resolution in which the decision or outcome is made by an arbitrator. The acceptance of the outcome is not mandatory for either the defendant or the plaintiff.
A value determined to compensate the injured party for diminished personal enjoyment, pain, and suffering, loss of consortium, etc.
Nose Coverage—(See Prior Acts Coverage) Occurrence Policy
A policy coverage type that covers an insured against any claim arising from an event occurring during the policy period, regardless of when the claim is reported.
This policy type covers the liability of a partnership or corporation of which the insured is an owner or shareholder. Partnerships and corporations can be sued for the alleged failure to establish proper clinical practices or procedures. They are often named as additional defendants in claims against partners or shareholders in order to increase the amount of recovery potentially available to the plaintiff.
Patient Compensation Fund—See Catastrophe Coverage Per Incident Limits The amount of coverage purchased to cover indemnity amounts for each claim reported for a single injury during a policy period (i.e., $1mil/$3mil). Plaintiff A patient/claimant who undertakes formal litigation against a practitioner for alleged negligence in his/her medical care or treatment. Policy (Policy Form or Jacket) This is the portion of an insurance policy that contains policy provisions common to all insureds, such as covered acts, methods of indemnification, and claims reporting requirements.
Policy Endorsement Additions or modifications to the policy.
Endorsements can be added to restrict or expand coverages for the person(s) insured by the policy. An endorsement can add additional insureds or corporations for an additional premium. It can also be used to reflect modification of specialty, territory, or scope of practice of an insured.
The amount an insured is charged which reflects his/her expected loss or risk. In MPL coverage, the premium can be based on specialty, geographic region of practice, prior claims history, a performance of high-risk procedures, and other underwriting parameters.
Premium to Surplus Ratio
The ratio of premiums written to policyholders’ surplus. This ratio is one measure of the adequacy of the company’s financial strength. The lower the ratio, the greater the company’s financial strength.
Prior Acts Coverage (Retroactive Coverage or Nose 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 were not reported until that policy (or the last in a succession of policies) was terminated. Under prior acts coverage, the new policy covers such claims back to the retroactive date. With such coverage, purchase of tail coverage from the previous carrier is not necessary.
Professional Liability Insurance
A policy of insurance that covers “professional services” rendered from which an act or omission must arise for coverage to be applicable. Policies typically include all services rendered in the insured’s professional capacity. Professional liability policies generally have exclusions for “any dishonest, fraudulent, or criminal act or omission,” as well as general exclusions for bodily injury, property damage, or sexual misconduct.
A Latin word meaning “proportionality”; according to an exact rate, measure, or interest (i.e., the liability will be assessed pro rata between the defendants).
A Latin word meaning “only to the extent of; so far; for so much.” In legal terminology, it refers to the partial payment done when a claim is made.
Punitive awards by the court intended to punish the defendant for flagrant or willful, wanton, and reckless misconduct, rather than to compensate the patient. Punitive damages are rarely awarded in medical liability cases but are commonly alleged by the plaintiff attorney to secure a settlement.
Insurance purchased by the primary insurance carrier to protect against excess losses. The reinsurer agrees to indemnify a primary company against all or part of the loss that the company may sustain under the policy(ies) issued. For example, a primary insurer may issue a policy for $1 million per incident, $3 million annual aggregates. Under a reinsurance treaty, the reinsurance company may agree to pay all losses above $500,000 per incident, $1.5 million annual aggregates, in return for a premium paid by the primary insurer.
The date on which the alleged injury is actually reported to the insurance company. The report date that is recorded can be for an event that resulted in an incident report, a claim, or a lawsuit. A practitioner with claims-made coverage must have a policy in effect on the date the injury or action was reported for coverage to be effective. If the claims-made policy has been canceled “or expired prior to the report date,” the insured must have purchased a reporting endorsement in order for the claim to be covered.
Reporting Endorsement (Tail Coverage)
This provides coverage for claims caused by acts or omissions that occurred during a policy period but reported after a policy has expired or been canceled. Restrictions Limitations placed on MPL coverage that affect the scope of practice.
Date First date of coverage for a claims-made policy.
Risk-Based Capital (RBC)
The amount of required capital the insurance company must maintain based on the inherent risks in the insurer’s operations.
This type of coverage is offered to group practices and institutions and covers the risk of a “block” of exposures, i.e. several physicians rotating through one full-time equivalent position. In a big group practice, there may be several physicians that rotate in and out of the office but perform as only one full-time physician filling the “slot” on a rotating basis.
Standard of Care
A diagnostic and treatment process a practitioner should follow for a certain type of patient, illness, or clinical circumstance. In legal terms, the level at which the average, prudent provider in a given community would practice. It is how similarly qualified practitioners would have managed the patient’s care under the same or similar circumstances. The plaintiff must establish the appropriate standard of care and demonstrate the standard of care has been breached to pursue a finding of negligence.
Statute of Limitations
A legislative act restricting the time within which legal proceedings may be brought—usually to a fixed period after the occurrence of the events that gave rise to the cause of action.
Opposite a merit rating. In a surcharge program, an insured pays an additional premium if he/she exceeds certain claims experience threshold based on a number of characteristics—including specialty, number of claims, and the outcome and/or the amounts paid for each claim.
The aggregate assets the company has in excess of its direct financial obligations. The surplus is equivalent to the capital and retained earnings or net worth. It is the amount by which assets exceed liabilities.
Tail Coverage—See Reporting Endorsement Territory
The geographic area in which the physician practices. Professional liability premiums can vary greatly between geographic regions of the same state. It is critical that the insured inform the insurer of all regions in which he/she practices, within or outside of one state.
Total Premium Earned
The portion of premium dollars collected by the company which has been allocated to the insurance company’s loss experience, expenses, and profit year-to-date. For an insurance policy with an annual premium of $365, one additional dollar of a premium is earned with the passage of each day.
A type of reinsurance in which a reinsurer underwrites part or all of a ceding company’s book of business.
Unallocated Loss Adjustment Expenses (ULAE)
Expenses incurred by the insurance company to resolve claims not attributable to specific claims, such as rent, salaries, and utility costs.
Expenses incurred by insurance companies to market, sell, and produce insurance policies.
The part of the premium applicable to the unexpired part of the policy. It has not yet been earned by the insurance company and is therefore due to the policyholder if the policy should be canceled. Unearned premium is carried as a liability on the company’s balance sheet.
Liability imposed upon a person even though he/she is not a party to the specific occurrence. Insurance coverage can be provided for other health professionals when they are working under direct supervision of the insured physician. For example, an anesthesiologist may have a “vicarious liability” exposure for certified registere