Episode 003: The Ins and Outs of Malpractice Policies

Brian: Hello and welcome to today's podcast. I'm Brian Fortenberry and today with us we have Mrs Charmy Shrode. Welcome Charmy.

Charmy Shrode: Thank you, it's good to be here.

Brian: Today we're going to be discussing all about limits of your policy and all the questions that come with what are the right limits, how much limits, what do those limits mean? But before we even jump into that, Charmy tell our listeners a little bit about yourself, about your time at SVMIC and your experience with medical professional liability insurance.

Charmy Shrode: I have been in medical professional liability insurance for over 30 years. The last 20 years I've been here at State Volunteer.

Brian: I happen to know you have a tremendous amount of experience and knowledge in this area, not only here at SVMIC but also with PIAA and some of those other organizations. Your opinions are very much coveted and valued in teaching others. Thanks for the opportunity to pick your brain a little bit today on this.
So limits, limits of liability, whenever you're talking about homeowner's insurance or other types of insurance policies, you're obviously talking about large amounts of money. But I hear numbers when it comes to medical professional liability starting out at a million dollars. We're talking about enormous limits. Why so high?

Charmy Shrode: Because the damages can be so high. When you look at a auto policy the most expensive car is how much? Versus in medical professional liability you are looking at not only the medical expenses that might be incurred from a bad outcome, but the income of that person that is not able to continue to perform their duties or so forth from the medical incident.
So you're talking higher damages, and really, honestly, what's the value of a life? If you were to have someone die under you care, somebody might be putting a value on that. That's a hard thing to talk about but that's really where your limits of liability on a medical professional policy are going to be considered.

Brian: That's a reality. You know, when you said healthcare is expensive in as far as just the cost, if something goes wrong in a procedure or what not, someone could be hospitalized for a long period of time. As we know, any of us that have ever had medical procedures done, you can rack up some significant bills fairly quickly. Those are going to come into play obviously in a policy. Then not to mention damages and all of that above and beyond that. That does certainly make sense.
Now, when we talk about limits, where is the baseline? Where do you start with? Because like I was saying, a million dollars, are there policies that are less than that or more than that? How high can you go? What is the range of limits in a medical professional policy?

Charmy Shrode: They do vary tremendously over the regions of coverage. Across the United States you're going to find the most common limit carried is significantly different in some states than others. What might trigger that and cause that to be so varied is the statutory requirements under each state. For example if you have some sort of Tort reform that puts caps on those damages that we were just speaking of, then that is going to limit the need for the limits above or a higher set of limits. Each state, each hospital is going to have their own requirement on what that physician needs to carry. So your limits of liability really are determined by statutory requirements in that state, as well as your hospital requirements for privileges there, and those types of things.

Brian: In some states then you have a minimum you have to reach for maybe the state requirement or the statutory requirement or for having privileges at the hospital or an insurance company. That's what you're saying?

Charmy Shrode: Yes.

Brian: And that also determines these limits, these caps or Tort reform that you're talking about. That also plays into really how high you need to go in some areas as well then, because you have a level of say protection up to a certain level, is that correct?

Charmy Shrode: That's correct. I believe in Florida for example the most common example of limit of liability that is carried there is a $200,000-$600,000 policy. By that, I mean it's $200,000 per medical incident limit, and it's $600,00 annual aggregate limit.
That's the most common from what I understand in Florida. In other states, for example in Kentucky, the most common limit I believe in Kentucky is a million, three million. So it varies across the states, it varies across different specialties. So whenever you're trying to determine what is the best limit of liability or what is the limit that you need to carry, one of the first things you need to look at is what is the state's requirements and the statutory requirements within that state.

Brian: Going back just a little bit, because some people might know this but some people might not. You stated two separate limits there, like one million-three million. You said one million was per incident and three million annual aggregate, meaning obviously the amount in a year. What is the difference there in the million and the three million?

Charmy Shrode: On a million-three million policy, the first million, when you say a million per medical incident, that is the most the insurance company is obligated to pay on behalf on any one single medical incident.

Brian: Okay.

Charmy Shrode: So let's say you are an OBGYN and you have two patients that file a claim against you within the same policy period of time. Each one of those claims results in a lost payment. The most that will be paid out if you have a limit of liability of a million-three million, would be a million dollars per medical incident, so per that one claim.

Brian: Got you.

Charmy Shrode: But since your aggregate in this situation is three million, you would also have another million to go towards the second claim that is being filed against you. So for any policy period of time, the most they are going to pay out on any one medical incident or one medical patient claim would be a million dollars, and the most they will pay out is three of those, which would be a three million aggregate.

Brian: Got you. So every year when your policy renews then ... because, does it go in 12 months increments for the most part?

Charmy Shrode: For the most part, your policy term is 12 months.

Brian: So when you get to the end of that policy term and you renew, do you get new limits, or is it just one set of limits for the lifetime of that policy, however long?

Charmy Shrode: Most contracts, most policies will renew those limits each year. You will want to make sure you look at the contract to make sure that it says that your limits are reinstated each policy term. But that is the standard that they are.

Brian: Speaking of standards, is there a standard of limits that you have to have, for say hospital privileges? Does that vary state by state as well?

Charmy Shrode: It does vary state by state and the coverage areas that State Volunteers is in. The most common hospital requirement is a million-three million to be carried. Now, some hospitals have started making the different specialties have a higher minimum limit.

Brian: Really? Okay.

Charmy Shrode: But that is case by case, facility by facility. You would want to check and see what that requirement is.

Brian: Are all policies for the most part, and I know we're speaking in general terms, and I know we're kind of speaking too as to what SVMIC's way of doing this is specifically. Are all policies, that two million off like that, like one million, three million? Or there are sometimes these bigger gaps of one to nine or whatever like that? Why is it like that.

Charmy Shrode: State Volunteers are that way. You start like a million-three million, and then you would go to a two million-four million, or a three million-five million. It continues to increase all the way up to a 10 million-12 million option with State Volunteers. Not every company does that, and really it's a choice as to what you're aggregate needs to be. That's going to be an actuarially determined amount, as to what your premium is going to charge depending on what your aggregate. Obviously if you had a million-two million, then you're getting less coverage than if you had a million-three million.

Brian: Exactly, okay.

Charmy Shrode: So actuarially it's going to drive your premiums based on that. Most I believe do the two limit, two million in between each one, but not everyone does it that way.

Brian: If you are trying to determine your limits of liability, as you were saying some groups or some hospitals or some specialties in certain areas may dictate to you, this is the limit you have. You've talked about SVMIC has one-three, all the way up to 10-12 and every variance in between that. If I'm trying to decide, if I don't have those parameters and I'm trying to decide what limits do I need to have, what should I look at to help me determine limits? Should it be specialty? Should it be region? Should it be ... what?

Charmy Shrode: We get asked that question often by our policy holders. They'll call and say, "What limit should I carry?" That's always a hard answer because how much is ever enough with any kind of insurance?

Brian: True.

Charmy Shrode: If you have liability insurance on your home, if you have an excess policy, how much is really enough? There are several things you can look at. The bottom line then comes back to what is your risk tolerance? What are you comfortable with?

Brian: I got you.

Charmy Shrode: What I might suggest is you talk to some of your peers. Find out what is the most common limit that your peers are carrying. This would be after you check with your requirements, that we've already talked about. Obviously the higher the limit the more the premium, and cost may prohibit you from carrying the higher limits that you would like to.
Finding that mark that you've comfortable with is a challenge. Some specialties deal more with frequency than severity. What I mean by that, let's say if you are a primary physician, you might have more frequent lost payments of a smaller amount, than say a OB-GYN. With an OB-GYN it's very possible that you're going to have a larger lost payment that you would for primary care. If you have a bad outcome, if you misdiagnosed the flu, your damages there versus if you misdiagnose cancer.
Of course by specialty it's going to matter and play into that. Frequency versus severity in the type of specialty that you are in. Your insurance company should be able to help you talk through some of those situations. Some people are concerned with having higher limits that then they just become a deeper target because they have higher limits. Tennessee, your limits are not discoverable.

Brian: They're not, okay.

Charmy Shrode: It's one of the few states, I believe there's only three states across the whole country that your limits are not discoverable.

Brian: So when you say discoverable limits, are you talking about that if your named in a claim and when everybody starts bringing the evidence to the table, you have to divulge what your limits of liability are on your medical professional policy. Is that what we're talking about?

Charmy Shrode: Exactly.

Brian: Okay.

Charmy Shrode: That's exactly right. Now I should clarify that under federal cases here in the state of Tennessee your limits are discoverable. But general civil cases, your limits are not discoverable. So you can carry higher limits if you feel you want that additional layer of protection, and still not have the risk of feeling like you're a deep pocket or a target.
What I mean by deep pocket, let's say that there's multiple healthcare providers named in the same lawsuit, if the plaintiff attorney identifies on particular person having a higher set of limits or money available for an outcome, they may then target their investigation and their thought patterns of negligence to that particular person that has the higher limits, so that they can get more money out of it.
Now of course you still have to prove negligence and so forth, and all of that would need to be required, but you don't want to add another component to the attorneys, to give them a big target on your back. So knowing what your peers are carrying, knowing what is generally the acceptable limit around, and if your state have those limits discoverable.

Brian: I got you. So it's important to know the regulations and the laws that surround that. I guess that where Tort reform comes into play, because like you were saying in the state of Tennessee not discoverable, whereas you go to a different state, it may very well be discoverable.
We've talked about damages when it comes to limits. Do you in your limits, say I have one million-three million limits and I'm family practice doctor. I get notification that I am being named in a suit and I report it to my insurance company, I report it to SVMIC and they start saying, "Okay, this looks like we're going to have to get an attorney involved and we're going to have to start filing motions and start collecting data. So therefor we're racking up some legal expenses." Are those legal expenses eating away at my limits of liability on my policy?

Charmy Shrode: It's a very good question. State Volunteer's policy, those legal expenses are outside your limit of liability. So when you have a million-three million policy, you have a million dollars available for a judgment or settlement on that claim, in addition to any legal expenses, that is our obligation to provide your defense. You will want to check your policy contract if you are with anyone other than State Volunteer, to find out how they handle those legal expenses.
Some policies, those expenses erode that limit. Let's say, if you have a million dollar policy limit per medical incident and your legal expenses are eroding that, you could have developed this case, had expert witnesses, have all of that, and by the time you've done all of that you don't have any policy limit to actually pay on any kind of judgment should that happen. So you want to make sure how your policy language addresses that. At SVMIC, again, those legal expenses are outside of that limit of liability that we were referring to.

Brian: That's a big different, because like you said you put up a great defense, but a great defense cost $500,000 in a nasty case, and then you did a really good job and you still had a verdict of 750,000, you're 250,000 if you have a million dollar limits that is not covered. That is something very key to look at there.
Thinking about that, you go, "Alright." Maybe during the year you go, "I don't know if I need more limits or not." So you reach out to your insurance company, your provider, hopefully SVMIC, and you go, "You know, I've talked to some people, I've talked to some peers. I'm concerned about my limits. I really think I want to raise my limits." Can you do that at any point? Do you have to wait till the next renewal? Is there a process for that? Likewise, maybe I had high limits and I'm thinking, "Maybe I want to look at my cost and reduce my limits." Can that be done during the year as well?

Charmy Shrode: Again, each company is going to have their own rules and regulations around that. Each contract is going to address that individually. So I can speak to SVMIC's policy. We allow you to make changes throughout the whole policy term. So if you wish to increase your limits or decrease your limits, your welcome to do that. Then we calculate the appropriate premium charge based on the exposure difference from what you're changing it to.
Your SVMIC policy is report date driven, so what that means is that if you have for example a million-three million dollar policy today, and then on January 1, let's say your policy term is July to July and you start out at a million-three million. As of January 1, you wish to increase limits of liability to two million-four million, two million per medical incident, four million annual aggregate. Anything that is reported already to State Volunteer prior to your January 1 effective date of that limit change would be covered at the million-three million limit. Anything reported after that is covered at the new limit that you just changed it too.

Brian: Whether it goes up or down, right?

Charmy Shrode: Whether it goes up or down. That is somewhat unique to State Volunteer. Some companies still look at the occurrence day and what the limits were at the time the incident occurred, so the date that you rendered care, what your limits were on that day. So you will want to know how that is going to be address within the policy that you have. Again at State Volunteer, the limit that you have at the time your report the claim is the limit that is applicable to that particular medical incident.

Brian: When we talk about limits as well, you've got a lot of office staff around you and personnel, from laboratory people to receptionists to nurses, LPNs, technicians, even physician's assistants and nurse practitioners these days. Do your limits cover them, or do they have separate limits, or do they share limits? I hear all these terms out there, and it's kind of hard to decipher sometimes, to know who's got what limits, and who's sharing, and who has individual limits. I know based on our conversation, probably different for different companies as well, but in particular how does SVMIC handle that?

Charmy Shrode: You are correct, each company is going to address that differently. At State Volunteer the name insured's employees, like their receptionist and their office staff and their medical techs, those type of people share in the limit with you, with your individual as the named insured. Any nurse practitioners or CRNAs or physician assistants, which we've referred to extenders, but several other companies might refer to them as allied health, those healthcare providers under State Volunteer's policy would then obtain a separate set of limits underneath that policy. So they would each have upon application, be granted their own separate limit of liability.
The reason State Volunteer does this is it allows them to have their own limit without diluting the named insured's, the physician's limit, while also defending that healthcare provider. If you have a practice entity that is employing these healthcare providers, then the practice entity would have a limit with SVMIC. The doctors would each have their own individual limit with SVMIC and then any allied health or extender would also have their own limits. Becoming more of a pattern as some insurance companies are taking and squishing all of that up together and saying your practice entity and the extenders or allied health would all share in a single set of limits, instead of providing individual limits to each one of those. You will want to look at the policy documents to find out how that company is going to address those particular limits of liability with those healthcare providers.

Brian: So in a scenario for a person like me, say there was an incident with a large group and the doctor saw this patient and a nurse practitioner that was employed by this group that's owned by multiple doctors, so it has its own policy. There is a suit filed and all three, the physician assistant or nurse practitioner, the actual physician and the entity are all named in this suit. You're saying under SVMIC there are three separate limits there that cover them, rather than all of them sharing a set.

Charmy Shrode: That is correct.

Brian: That's very valuable because if you're, as you said squishing them altogether, then you're going to erode those limits potentially pretty quick. Certainly if your policy language said something of its eroding limits in those legal expenses like we were talking about earlier, you could find yourself in a rough situation pretty quick.

Charmy Shrode: You can. Let's take that a step further. Let's say that you have a medical incident that was reported that year and it uses up a limit, and then during that same policy term another physician or another nurse practitioner is named, how much of the limit has already been eroded? Are you going to have coverage once your claim actually gets resolved?
That's why State Volunteer has taken the position that each insured has their own set of limits. That way, the decisions on defending that case do not inhibit the defense of another insured under that same situation.

Brian: That's a great point, because if you know you have eroding limits that are being shared by people, and as you see those limits go away, it may change your whole attitude toward how you defend the last guy to the party, shall we say, that is on the backend of these eroding limits. You think, "We've only got this to play with, we're going to have to defend this differently than we would like to." That's something that they need to consider as well.

Charmy Shrode: You're right.

Brian: As we get ready to wrap up, for those people out there that have those difficult questions when it comes to limits of, "I just don't know what to do?" What are some key components that we can leave policy holders and potential policy holders with? These are key things I need to think about, or key people maybe I need to reach out to, in order to make an educated decision when it comes to limits.

Charmy Shrode: Check with your credentialing to see what the requirement is at the locations in which you are going to render care. Look at Tort reform or any kind of statutory limit requirement within your region. Talk to your peers to find out what their comfort level is. The last thing really, determine what your risk tolerance is. If you would prefer to not take on any risk, then you will want to pass that risk on to an insurance company and have higher limits of liability.

Brian: What can you sleep at night comfortably with knowing that you have,

Charmy Shrode: Exactly.

Brian: This has been very informative. Certainly if a policy holder or a potential policy holder needed to talk about this further, they can certainly reach out to the underwriting department here at SVMIC to get that information, correct?

Charmy Shrode: Yes, anyone in the underwriting department is more than happy to help walk through this conversation to help each physician figure out what best suits their needs.

Brian: We will have more information on that in the show notes of this particular podcast. Charmy, thanks for being with us today.

Charmy Shrode: Thank you for having me.

Speaker 1: Thank you for listening to this episode of Your Practice Made Perfect with your host Brian Fortenberry. Listen to more episodes, subscribe to the podcast and find show notes at svmic.com/podcast. The contents of this podcast are intended for informational purposes only and do not constitute legal advice. Policy holders are urged to consult with their personal attorney for legal advice, as specific legal requirements may vary from state to state and change over time.