Medmal Glossary of Terms

Absolute Liability – Liability regardless of fault.

Accident-year Basis – The annual accounting period, in which loss events occurred, regardless of when the losses are actually reported, booked or paid.

ALAE-Allocated Loss Adjustment Expenses – Expenses directly attributable to specific claims. Includes payments for defense attorneys, medical evaluation of patients, expert medical reviews and witnesses, investigation, record copying, etc.

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 policyholder’s 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. (see also nonassessable)

Assets – All the property and financial resources owned by an insurance company. Admitted Assets are those assets that are liquefiable to raise cash to pay claims. Nonadmitted Assets are assets, such as real estate (other than home office), furniture, and other equipment that are not liquefiable.

Assumed Premium – The consideration or payment an insurance company receives for providing reinsurance for another company.

Attorney-In-Fact – The entity that manages an interinsurance or reciprocal exchange and to whom each subscriber (policyholder/owner) gives authority to exchange insurance among the subscribers.

BEST’s Rating – The rating system developed and published annually by A.M. Best Company that indicates the financial condition of insurance companies.

BOR – Broker of Record

CAP/MPT– “The Trust” –Cooperative of American Physicians Mutual Protective Trust

Causation – The legal standard that asks a judge or jury to decide whether a physician’s actions or inaction created or contributed to a health problem. It is difficult to prove because it requires showing what would have happened if another path had been taken.

Certificate of Insurance (COI) – Document providing evidence of certain general types of insurance coverage and limits that have been purchased by the party required to furnish the certificate.

CIGA – California Insurance Guarantee Association – California Admitted carriers are members and pay a small percentage of their premiums into an association fund as backup in case their company files bankruptcy. (CIGA will cover claims of their insured – for a limited time)

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

Claims History Report – Report generated by current and past insurers showing how many claims (if any) have been filed against the insured. This report usually includes date of claim(s), current status, and whether or not any indemnity has been paid on behalf of the insured.

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 an Extended Reporting Endorsement, provides coverage for claims that occur during the coverage period but are reported after the policy terminates.

Claims-Paid Coverage – Under a claims-paid policy, premiums are based only on claims settled during the previous year and projected to be settled in the coming year. Many claims-paid policies are assessable for a number of years, or even indefinitely, after a physician has terminated the policy.

Claims Reserves (claims-made policy) – Funds set aside to satisfy those claims that have been reported to the company but not yet resolved or paid.

Claims Reserves (occurrence policy) –  An additional reserve must be set aside for incidents that occurred but were not formally reported during the policy year and are expected to be reported after the close of the policy year.

Claim Severity – refers to the amount of financial liability resulting from settling a claim. A claim that is settled with no payment for damages is generally considered to have a “small” claim severity, while a claim in which the carrier pays the full limits of a policy is a “large” severity claim. Trends in claims severity on a specialty-by-specialty basis are important factors in setting rates each year.

Composite Rate – A composite rate is a unique component of claims-made insurance coverage. Composite rates are used by actuaries to calculate premiums in specific cases in which the future claims risk has been significantly reduced or increased.

CVLR- Currently Valued Loss Run – When applying for insurance, the carrier will require this report covering the last 10 years from any and all prior insurance carriers. The report usually includes indemnity paid, expenses paid, indemnity reserves, and expense reserves.

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, annual premium, and any coverage restrictions. Applicable policy endorsements would be referenced on the declarations page.

Deductible –

• Voluntary – Allows the insured to pay an amount of the “first dollars” of a claim payment and to pay a lower premium for assuming this risk.
• Involuntary – Imposed by the insurance company due to the adverse risk characteristics of an insured. Involuntary deductibles do not include a premium reduction.
• Straight – Provides that all loss payments are reduced by the amount of the underlying deductible with no other considerations.
• Franchise or Quota share – provides that the insured and the insurance company split all costs within the deductible amount, such as on a 50-50 basis.

Direct Written Premium – A carrier’s gross premium written, adjusted for cancellations, before deducting any premiums paid or ceded to a reinsurer.

Dividend – A partial return of premium to policyholders.

DOI – Department of Insurance –   Admitted carriers are regulated by their state’s DOI.

Domiciled – Refers to the state in which an insurance company receives a license to operation. 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.

E&O – Errors and Omissions – Form of insurance that protects the insured against liability for committing an error or omission in performance of professional duties. This is generally designed to cover financial losses rather than liability for bodily injury and property damage.

EPLI – Employment Practices Liability Insurance – Protects employers against allegations of sexual harassment and wrongful termination and discrimination in terms of race, age, sex and disability.

Excess Insurance – A separate insurance policy with limits above the primary (or first dollar) policy.

Experience Rating – The system of rating or pricing insurance in which the future premium reflects actual past loss experience of the insured.

Extended Reporting Coverage (ERP) – Also known as “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 usually 125%-250% of the prior year’s premium.  Sometimes, in the case of death or total disability or retirement, tail coverage may be provided at no cost. Terms for tail coverage vary by insurer.

Hammer Clause – If you don’t agree to settle for x amount, you pay anything over and above the originally proposed settlement amount.

HIPAA – Health Insurance Portability and Accountability Act – The HIPAA Privacy Rule provides federal protections for personal health information held by covered entities and gives patients an array of rights with respect to that information. At the same time, the Privacy Rule is balanced so that it permits the disclosure of personal health information needed for patient care and other important purposes.

IBNR– Incurred but not reported. IBNR reflects the total amount owed by the insurer to all valid claimants who have had a covered loss but have not yet reported it. Since the insurer knows neither how many of these losses (the frequency) have occurred, nor the severity of each loss, IBNR is necessarily an estimate.

Incurred losses – Includes both paid and unpaid (reserved) losses.

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

Indemnity Reserves – Claims reserves that are set aside to pay the portion of claims costs paid directly to claimants.

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 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 their 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 or physician member of a medical group. This coverage may be contingent upon the policyholder or member physician not practicing during the period win which the locum tenens coverage is in effect.

Loss Ratio – A paid loss ratio is the amount of premium a policyholder has paid to the carrier through the years versus the amount the carrier has paid out on his or her behalf for defense and indemnity. For instance, a paid loss ratio of 50% means the carrier has paid out 50% of what they’ve received in premium from a particular policyholder. However, the loss ration doesn’t take into consideration the carrier’s expense costs, which usually run an additional 25-35%. As a result, a loss ratio greater than 75% usually means the carrier is losing money. A policyholder that has never filed a claim has a 0% loss ratio.

Loss Reserves – The amount set aside to pay for reported and unreported claims. For an individual claim, a case reserve or estimate of the expected loss is set aside.

Malpractice – Also referred to as 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 5th through the 7th year. The first level premium is substantially lower than a mature premium. It is designed for policyholders that are new to practice and therefore have no claims history. The mature-level rate reflects the fact that the majority of claims are filed within four to five years of an incident.

MICRA – Medical Injury Compensation Reform Act of 1975. 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 one year from the discovery of an injury and its negligent cause.

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.

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

Nonstandard Risk – Those persons or entities that must pay higher premiums and be subject to special coverage restrictions based on underwriting standards.

Nose Coverage – Nose coverage covers claims first made against the insured after the effective date of coverage on the policy. To be covered, such claims must arise out of the insured’s acts or omissions prior to the policy’s effective date and after its retroactive date.  Nose coverage is also referred to as retroactive coverage and prior acts coverage.

NSP – Non-standard physician – See Nonstandard risk

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.

Paid Losses – The amount paid in losses during a specified time period.

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.

Premium Credits – A credit included in the premium computation that recognizes a reduction in hazard, which makes the account a better risk.

Premium-to-Surplus Ratio (P/S) – The ratio of net written premium to surplus. This ratio reflects a company’s financial strength and future solvency. The ratio should not exceed 3:1.

Profit or Loss – Underwriting results are combined with investment income, expenses and taxes to calculate profit or loss. Actual profit results from underwriting profit plus investment income that exceeds losses, expenses, and taxes or from investment income that offsets the underwriting loss, expenses and taxes. Actual loss results if the investment income does not offset the underwriting loss, expenses, and taxes. Actual losses must be offset by drawing on the company’s surplus. Companies offering assessable policies can impose payments on their policyholders to amend the loss.

Punitive Damages – Also called “Exemplary Damages”. Optionally covered by most 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 a 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.

Reserves-to-Surplus Ratio (R/S) – A ratio that measures a company’s financial ability to pay claims if reserves prove to be inadequate. Such payments must come from the insurer’s surplus. This ratio should not exceed 4:1.

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.  See also “Tail Coverage”.

Re-underwriting – The process by which the company reevaluates policyholders and, as necessary, imposes surcharges, deductibles or non-renewal in cases where the policyholder’s claims history or other experience presents a consistent pattern that creates an undue liability risk.

Reinsurance – Transaction in which one party, the “insurer”, in consideration of a premium paid to it agrees to indemnify another party, the “reinsured”, for part or all of the liability assumed by the reinsured under a policy or policies of insurance that it has issued. The reinsured may also be referred to as the “original” or “primary” insurer, or the “ceding company”.

Retroactive Date – Provision found in many claims-made policies that eliminates coverage for injuries or damage that occurred prior to a specified date even if the claim is the first made during the policy period.

Retrospective Rating – Formula of premium computation that reviews the previous loss experience and, after the policy year ends, adjusts the premium up or down based on the loss experience. Some plans provide a guaranteed maximum cost; some guarantee that the premium will not exceed the standard premiums otherwise applicable.

Risk Classifications – A classification based on the number and amount of losses that can be expected from a physician’s specialty and procedures.

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.

Robbins Brown Act of 1986 – This act outlines the minimum amount of time required for a carrier to notify an insured of their intent to cancel a policy, or increase base premium by more than 25%. (Usually a minimum for 45-60 days notice required)

SIR – Self Insured Retention- The dollar amount specified in an insurance policy (usually liability insurance policy) that must be paid by the insured before the insurance policy will respond to a loss. SIRs typically apply to both the amount of the loss and related costs, e.g. defense costs, but some apply only to amounts payable in damages, e.g. settlements, awards, and judgments.  An SIR differs from a true deductible in at least two important ways. Most importantly, a liability policy’s limit stacks on top of an SIR while the amount of a liability insurance deductible is subtracted from the policy’s limit. As contrasted with its responsibility under a deductible, the insurer is not obligated to pay the SIR amount and then seek reimbursement from the insured; the insured pays the SIR directly to the claimant.

Standard Risk – A person, who, by the company’s underwriting standards, is eligible for insurance without restrictions or surcharges.

Stop Loss Insurance – Insurance offered to medical groups and hospitals that hold managed care contracts. This insurance covers the policyholder in case its patients suffer catastrophic medical conditions beyond the standard and customary.

Surplus – the amount by which a company’s assets exceed its liabilities. A company’s surplus allows it to take on risk and serves as a cushion in the event that the losses form that risk exceed the premiums intended to cover the risk. Stated another way, surplus can be used to make up for deficiencies in loss reserves that were wet aside from earned premiums. Thus, surplus serves to provide strength and to maintain fiscal integrity in the face of adverse loss experience that was not actuarially anticipated.

Surplus contributed and Surplus Earned – Surplus contributed is the amount of capital an insured must provide for a mutual company or reciprocal exchange during the early years of the company’s operation. Surplus earned represents the earnings of the company after losses, expenses, and taxes. As the company stabilizes and grows in financial strength, earned surplus from profits is added to the contributed surplus, and the contributed surplus can be returned to the early policyholders.

Tail Coverage – Also known as Extended Reporting 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 usually 125%-250% of the prior year’s premium.  Sometimes, in the case of death or total disability or retirement, tail coverage may be provided at no cost. Terms for tail coverage vary by insurer.

Telemedicine – Telemedicine is the use of medical information exchanged from one site to another via electronic communications to improve patients’ health status. Closely associated with telemedicine is the term “telehealth,” which is often used to encompass a broader definition of remote healthcare that does not always involve clinical services. Videoconferencing, transmission of still images, e-health including patient portals, remote monitoring of vital signs, continuing medical education and nursing call centers are all considered part of telemedicine and telehealth.

Tort – Any action or inaction that wrongs, damages, or injures another and thus forms the basis of a civil lawsuit.  (See MICRA – Tort Reform)

ULAE – Unallocated Loss Adjustment Expenses – Claims expenses of a general nature not directly attributable to specific claims. They include the salaries of claims personnel and other costs of maintaining a claims department.

Underwriting Results – The profit or loss of the insurance company, computed by subtracting from earned premium those amounts paid out and reserved for losses and expenses. Any residual amount is called an underwriting profit. If those deductions exceed the earned premium, this is called an underwriting loss. Underwriting results do not include investment income (see also Profit or Loss)

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.