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Updated Nov 27, 2023

What Is Malpractice Insurance?

Malpractice insurance is a critical policy that all those working in the medical industry should have.

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Written By: Jennifer DublinoSenior Writer & Expert on Business Operations
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Professionals are expected to perform their services properly and with sufficient expertise. Clients and patients assume someone with a professional designation has the knowledge and resources to do the job right. However, sometimes, a professional, such as a doctor or lawyer, makes an egregious mistake that causes significant harm to a patient or client, which is called malpractice.

When a professional commits malpractice, the patient or client may sue to recover financial compensation to ameliorate some of the harm that has been done. It’s then up to a court to decide if a mistake was made, if it rises to the level of malpractice and, if so, what the penalty should be. Malpractice awards are often hundreds of thousands of dollars and can even climb into the millions. Because the stakes are high, malpractice insurance is a necessity.

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.  

FYIDid you know
Other professionals, such as accountants, general contractors and financial advisors, would obtain professional liability insurance instead of malpractice insurance.

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.

TipBottom line
Legal malpractice insurance is always claims-made instead of per-occurrence.

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.

What malpractice insurance covers

What malpractice insurance doesn’t cover

Defense, expert witness, legal, arbitration and settlement costs

Intentional wrongdoing

Punitive and medical damages

Illegal acts

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.

Bottom LineBottom line
Talk to others in your profession who have dealt with claims to understand how much coverage you realistically need and the business insurance costs you'll face.

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.

Malpractice insurance FAQs

The lawsuit begins with the patient or client becoming a plaintiff in the courts. The initial lawsuit is filed and gets a docket number. Then, the healthcare or legal professional is served a copy of the complaint and given a chance to respond. They contact their malpractice insurance provider to obtain legal counsel to investigate the incident and provide a defense. Often, a malpractice lawsuit is settled before it is heard in a courtroom. If it goes to court, the malpractice insurance may pay expert witnesses to testify on the professional's behalf. After both sides plead their case, a ruling is made. If the professional is found guilty, the malpractice insurance pays the claim up to the policy's limits. If the judgment is for more than the insurance limit, the professional may owe the plaintiff the difference.
Professional negligence and malpractice are similar but have a crucial difference. Negligence revolves around someone failing to exercise the same care that any other reasonable person would exercise in a similar situation. Malpractice is a specific type of negligence. For example, medical malpractice refers to negligence made by a licensed medical provider who fails to provide services that meet a required standard of care. In other words, malpractice involves negligence where the professional should know better based on their education and industry standards.
These are the most common examples of medical malpractice:
  • Misdiagnosis
  • Delayed diagnosis
  • Failure to treat
  • Errors with medication and prescriptions
  • Surgical errors
  • Procedural errors
  • Childbirth injuries
  • Death while under care
  • Some HIPAA violations
These are the most common examples of legal malpractice:
  • Missed filing deadlines
  • Misuse of finances
  • Inadequate discovery
  • Communication errors
  • Failure to know or apply the law
  • Conflict of interest
  • Error in strategy
  • Lack of client consent
  • Failure to follow instructions of the client or the court
While malpractice insurance is not a business insurance required by federal law, many states require doctors or attorneys to carry it. Even if a state doesn't require malpractice insurance, it typically requires doctors and lawyers to disclose whether or not they have it.
A person can be sued anytime for any reason. Most employer policies are tailored to cover the employer, not the individual license you carry. This means that if you are personally named in a lawsuit, you need your own malpractice coverage. For instance, a doctor's malpractice policy will not cover the individual nurses they oversee if those individuals are specifically named in a lawsuit. When you have malpractice insurance, you have your own legal defense to wholly protect your interests and license. This isn't always the case if you rely on an employer's policy to provide protection.
No. The best general liability insurance covers third-party claims of injury and property damage. General liability is for incidental injuries resulting from business operations, like slip-and-fall accidents. Malpractice injuries are the result of professional errors.

Jennifer Dublino contributed to this article.

author image
Written By: Jennifer DublinoSenior Writer & Expert on Business Operations
Jennifer Dublino is an experienced entrepreneur and astute marketing strategist. With over three decades of industry experience, she has been a guiding force for many businesses, offering invaluable expertise in market research, strategic planning, budget allocation, lead generation and beyond. Earlier in her career, Dublino established, nurtured and successfully sold her own marketing firm. Dublino, who has a bachelor's degree in business administration and an MBA in marketing and finance, also served as the chief operating officer of the Scent Marketing Institute, showcasing her ability to navigate diverse sectors within the marketing landscape. Over the years, Dublino has amassed a comprehensive understanding of business operations across a wide array of areas, ranging from credit card processing to compensation management. Her insights and expertise have earned her recognition, with her contributions quoted in reputable publications such as Reuters, Adweek, AdAge and others.
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