Don’t Let A Tail Wag Your Contract

Tail Insurance is a type of malpractice insurance coverage that covers claims that are made AFTER your malpractice policy has expired or been canceled. It covers claims that occurred during your policy period but are not reported until after the policy period has ended. In other words, a malpractice claim is filed against you for a time when you were insured by a prior carrier. You need insurance coverage for that claim whether the case has merit or not because you will still need to hire an attorney, defend it and possibly pay for damages. You will not want to do that out of your pocket which is commonly referred to as “self-insuring.”

To visualize and perhaps simplify the complex concept of tail insurance, think about the tail of a cat floating over a cat’s back like a protective “arch.” The back of the cat is the time that you worked in a specific job and had malpractice insurance for that job. The tail “covers” you and protects you from claims that occurred while you were on that job but did not expect and likely do not know anything about.

If you have “claims made” insurance coverage, the most common type, a gap will be created when you stop coverage unless you purchase insurance to cover the gap. This can be in the form of what is called “tail insurance” or it can also be in the form of other types of coverage, such as retroactive (“nose”) or continuing coverage with your existing carrier. We tell our clients to think of “tail” coverage as the “Cadillac” version of coverage for claims incurred but not reported or not known. It is the most expensive insurance product for its function but the most desirable for both employees and employers. Generally, tail insurance costs 200 per cent of the annual expiring insurance premium and it increases in cost over the first three years of coverage. Think of this from an OB/GYN perspective. If a premium is $100,000 per year, the tail could be $200,000. We have had clients who did not understand this and were left having to purchase a tail with their own money. Depending upon the specialty, this can be a significant amount of money.

When negotiating an employment agreement, tail insurance is one of the most important points to understand and negotiate so that when you leave your job you 1) will have tail coverage and 2) hopefully it will be purchased by your employer instead of by you!

Tips for negotiating tail insurance coverage in an employment agreement:

• Explore whether the employer is willing to provide tail coverage at the employer’s expense, particularly if the agreement is terminated by the employer without cause;
• In the alternative, try to negotiate partial contributions over time based on how long you are employed (e.g. tail is provided in increasing incremental amounts if you stay with the employer for agreed upon amounts of time).
• If the employer is not willing to provide any tail coverage, try to negotiate the option for other types of coverage, such as retroactive (nose coverage) or continuing coverage;
• Do not contractually commit to naming the employer as an “additional insured” because you cannot commit on behalf of the insurance company and many will not list a party as an “additional insured;
• Professional liability coverage and post termination coverage should be clearly documented in the employment agreement.

For further information about tail insurance, please Contact Us.