Ending a practice relationship doesn't end
liability
Contract Language.
By Steven M. Harris, amednews contributor.
Posted May 3, 2010.
CONTRACT LANGUAGE
A column examining the ins and outs of
contract issues
Whether a physician is divorcing from a
medical practice or the medical practice is
terminating a physician, both parties should
ensure that professional liability insurance
after the breakup is addressed before the
separation.
There are two main types of insurance
policies for professional liability:
claims-made and occurrence-based
coverage.
For claims-made coverage, the insurance
carrier will only cover claims that are made
while the physician is employed by the
practice. The physician would need to
purchase a tail policy to ensure coverage for
professional liability claims made after the
physician left the former practice.
See related content
Topic: Liability
However, if the physician's new employer
has the same insurance carrier as the
physician's former employer and is located
within the same state, there may be no lapse
in coverage, and thus no need for a tail policy.
If a physician had occurrence-based
coverage with his former practice, a liability
claim for an act that occurred during the
employment period, regardless of when the
claim is ultimately made, will be covered by
the insurance policy. With this kind of
coverage a physician would not need a tail
policy.
Most medical practices maintain
claims-made professional liability insurance
coverage.
Who pays for tail coverage?
By the time a doctor is readying to leave a
practice, the issue of tail coverage should
have been clearly predetermined in the
departing physician's employment
agreement. However, one of the most
debated issues I see among my clients is
who is paying for the tail policy.
I had a physician client who informed the
medical practice that he was resigning and
accepting employment by another practice in
a neighboring city. After his exit, his former
practice withheld his final paycheck and
issued him a five-figure bill for the cost of a
tail policy.
The physician was surprised. But he
shouldn't have been. His employment
contract read:
"Upon termination of Physician's
employment hereunder, the Practice may, in
its sole discretion, purchase tail coverage on
behalf of the Physician. In the event the
Practice purchases tail coverage, the
Physician shall be solely responsible for the
cost of such policy and the Practice shall
deduct the full cost of such policy from
monies otherwise due to Physician
hereunder. If monies otherwise due to
Physician hereunder are less than the cost of
such policy, Physician shall immediately
reimburse the Practice, in full, for the excess
amount."
The practice exercised its contractual right
and purchased tail coverage for which it
believed the departing physician would be
responsible for paying.
Unbeknownst to the former practice, the
physician's new employer maintained
professional liability insurance with the same
insurance carrier. The doctor had continuing
coverage, and therefore there was no need
for a tail policy. Unfortunately, his contract did
not provide for this possibility.
The agreement should have addressed the
physician's ability to maintain seamless
coverage with a subsequent employer, and
thus avoid the cost of tail coverage.
While professional liability insurance may not
be the first thing on a physician's mind when
joining a practice, it most definitely is a key
concern when leaving a practice. In order to
prevent unexpected surprises, be sure to
have the liability insurance provision of your
employment agreement solidified such that
all parties are on the same page in the event
of a physician's departure, or the dissolution
of the practice itself.
Harris, a partner at McDonald Hopkins in Chicago,
concentrates on health care law and has
counseled physicians, physician networks and
health care groups nationally. The author and
publisher are not rendering professional advice
and assume no liability in connection with its use.
He can be reached at 312-280-0111
312-280-0111 , or by e-mail
(sharris@mcdonaldhopkins.com).
The print version of this content appeared in
the May 10, 2010 issue of American Medical
News.