What Is Malpractice Insurance?

What is malpractice insurance?

Malpractice insurance is a liability insurance policy for healthcare or legal professionals. When errors happen in the course of executing professional services and the processional is deemed at fault, malpractice insurance pays the penalty so the professional doesn’t have to pay for claims out of pocket.

Who is malpractice insurance for?

Malpractice insurance is for legal and healthcare professionals:

• Malpractice insurance for legal professionals: In the legal profession, malpractice insurance covers mistakes an attorney might have made in handling a client’s case. Typically, only attorneys are covered by malpractice insurance. However, law firms may have an umbrella policy that covers all its employees, including paralegals and administrative staff. Solo lawyers, however, need their own malpractice insurance policies. An example of legal malpractice is if a client loses a big case because the lawyer did not file paperwork by the deadline.
• Malpractice insurance for healthcare professionals: In healthcare, doctors, surgeons, nurses, physical therapists and specialists can obtain malpractice insurance. Medical malpractice insurance pays claims when patients assert that a healthcare professional hurt them in some way due to negligence or harmful treatment. An example of medical malpractice would be if a surgeon operated on a patient while drunk and caused severe harm.

Malpractice policies are specific to the industry they cover and have crucial exclusions and terms. Reading policy documents carefully before buying a policy is critical.  

Types of malpractice policies

There are two types of malpractice policies. Both cover the same things; the difference is how that coverage is applied in relation to when the claim is made.

Claims-made malpractice insurance

Claims-made coverage requires the policy to be active when the claim is made. A healthcare provider or attorney who had a lapse in coverage could still add a retroactive date of coverage. 

For example, suppose a doctor accidentally had a policy lapse and didn’t have coverage from October 1 through December 31. In that case, they could get a policy starting January 1 with a retroactive coverage date beginning October 1. This would provide the needed coverage for the period when they were uninsured. Retroactive dates require an added premium, but ensuring coverage is in place is often worth it.

Additionally, a claims-made policy might have an extended reporting period, such as six months after the policy’s lapse date. This extended reporting period would cover claims made during the policy’s effective period but reported after the policy lapses.

Per-occurrence malpractice insurance

A per-occurrence policy is more expensive because it allows claims to be made anytime, whether or not the policy is active at the time of the claim as long as the date that the claim-related activity occurred was during the coverage period.

For example, if a policy has coverage from Jan. 1, 2020, to Dec. 31, 2020, a claim could be made on April 1, 2023, as long as the incident regarding the claim happened in 2019 during the coverage period.

Sometimes, patients or clients do not make claims immediately after an incident because they are unaware of the problem. They might only be informed of an error in practice in a follow-up with another provider, thus creating a malpractice claim.

What does malpractice insurance typically cover?

Malpractice insurance covers the mistakes a medical or legal professional may make during regular business operations. Medical claims might have to do with misdiagnosis, surgical errors, medication errors, childbirth-related injuries and other mistakes made by medical professionals. Some Health Insurance Portability and Accountability Act (HIPAA) violations are also covered. 

For lawyers, malpractice insurance usually covers mistakes made while representing a client in a case. Policies may have different definitions of “legal services,” so it is important to read through the policy documents carefully to understand your coverage. For example, one policy may only include legal services a client paid for, while another policy may also cover pro bono services.

Malpractice insurance won’t cover claims arising from sexual misconduct or physical abuse. However, if the claims are determined to be unfounded, the insurance will pay for the defense of the claim.

How much does malpractice insurance cost?

Since medical or legal mistakes often lead to settlements in the hundreds of thousands ― if not millions ― of dollars, malpractice insurance tends to be expensive. Malpractice costs vary widely depending on the profession and the type of practice involved. 

Medical malpractice insurance costs

Across medical specialties, annual malpractice insurance premiums average between $4,000 and $12,000. The range of costs reflects the risk each profession represents. For example, nurses are less likely to be sued than the doctor who oversees the nurse. Thus, there is less risk. However, nurses could still be named in a lawsuit and aren’t covered by a doctor’s malpractice policy.

Here are a few examples of medical malpractice premiums: 

• General practitioners: General practitioners’ policies average about $7,500 per policy year.
• Surgeons: Surgeons often pay much more, averaging between $30,000 and $50,000 per year.
• OB-GYNs: Premiums for obstetricians/gynecologists ― one of the specialties with the most frequent malpractice suits filed ― can be as much as $200,000 or more per year.
• Nurses: Nurses pay less than other medical professionals, with policies that can be lower than $100 per year. 

Legal malpractice insurance costs

Costs for attorneys vary depending on the type of law they practice and if they’ve had previous claims. On average, legal malpractice insurance costs between $1,200 and $2,500 per year. Attorneys in riskier practice areas pay between $3,000 and $10,000 per year. Risky practice areas include securities, intellectual property, trusts and estates and personal injury. 

Paralegals may also carry malpractice insurance, although they are less likely to be sued than attorneys.

Does your policy match your practice?

Basic malpractice insurance may not be enough. Remember that claims could result in settlements of millions of dollars. How does a professional determine the right amount of insurance to get?

First, understand that policies come in various coverage amounts: 

• Medical coverage: Smaller medical malpractice insurance policies start with $100,000 to $300,000 in coverage. This might be enough for a nurse or physical therapist, but most doctors need more. A doctor should have a minimum of $1 million in coverage, but even that could be inadequate.
• Legal coverage: A small law firm might get a malpractice insurance policy with $1 million in coverage. However, depending on the number of attorneys in the firm and the area of practice, this may not be enough to pay for all claims. The typical maximum limit is $10 million.

To ensure adequate coverage, research the prevailing limits in your area for your profession or specialty. You should have those limits at a minimum. While some professionals will buy even higher coverage, remember that if you have more coverage than anyone else, you become a deep-pocket target in a lawsuit that names multiple defendants. Additionally, some states cap awards, so you might not need to extend coverage beyond the award limits.

Where can I purchase malpractice insurance?

You can purchase individual or group policies from a private insurance carrier. For medical professionals, medical risk retention groups can also provide coverage at a discounted rate to those in the group. 

Some employers have a policy that covers an entire entity, such as a hospital or law firm. This type of policy may cover some individual risk. However, confirm with human resources to ensure you have the coverage you need. Most doctors and specialists will have their own policies to protect their interests as a separate entity from the hospital or medical group they work with. Some lawyers may also have an individual policy covering legal work outside the firm.

When shopping for insurance, compare prices among different providers to ensure you get the best coverage for the best price. Remember to compare policies apples to apples for each quote you get ― ensure each one has the same coverage limits. See if a deductible applies and, if so, how much that is.

Proving malpractice

A patient or client can file an insurance claim anytime. Sometimes, claims are made out of frustration and vindictiveness. Some are outright fraudulent. To get a settlement or a judgment from the professional or their insurance carrier, the plaintiff must prove malpractice occurred:

• Proving medical malpractice: To prove medical malpractice, the medical plaintiff must demonstrate that the doctor or other medical provider violated the general standard of care of the patient. This standard of care is an industry-approved level of care and protocol. The plaintiff and their attorney must prove a breach of protocol, prove that the error caused physical or emotional injury and provide evidence that the medical professional caused it.
• Proving legal malpractice: For legal malpractice, a plaintiff must prove there was an attorney-client relationship and that the lawyer committed one or more negligent acts that caused damage to the client. Usually, this means proving that if the lawyer had not made the specific mistake, the client would have won the case but instead lost due to the mistake.

Jennifer Dublino contributed to this article.