If claims-made insurance is the benefit you have received in your employment agreement, it is imperative that you understand tail coverage is necessary when you leave that employment. However, if you leave employment and 1) accept a new job within the same state and 2) remain insured by the same insurance carrier, then the insurance carrier will provide “continuous coverage” and no tail insurance is needed.
If you determine that tail coverage is needed, the next critical question is, Who is paying for this coverage? Even though tail coverage comes into effect after you leave a place of employment, it is best to address how tail coverage will be handled at the onset of the relationship—in the employment agreement. Payment of tail coverage should be defined in your employment agreement. With regard to payment for the coverage, there are several options. First, the cost of tail coverage can be attributed 100% to either party, you or your practice. In specialties where recruitment of new physicians is challenging, employers may be more likely to pay a substantial portion, if not all, of the cost of tail coverage as a benefit or inducement.
Second, you can tie the payment of tail coverage to the manner in which employment is terminated. For example, if you terminate the employment agreement “for cause” or if your employer terminates the employment agreement “without cause,” consider requesting that the employment agreement require the employer to pay for the tail insurance. Alternatively, if you terminate the employment agreement “without cause” or if your employer terminates the employment agreement “with cause,” it may be reasonable for you to pay for the tail policy under those circumstances.
A third option is to split the cost of tail insurance between you and your employer based on a percentage, or to include a vesting schedule. For example, the employer pays a percentage of the coverage if employment ends in the second year, a larger percentage of the coverage if employment ends in the third year, and all of the coverage if employment ends in the fourth year or later.
Whatever arrangement you and your employer agree upon should be included in your employment agreement in order to prevent a costly surprise at the end of the relationship.
It’s Time to Review your Policy
Now that you have an understanding of claims-made coverage, occurrence-based coverage, and tail insurance, it’s time to review your insurance policy. When reviewing your policy, look for answers to the following key questions:
