It’s easy for dental professionals to feel overwhelmed by the jargon and conflicting advice surrounding dental malpractice insurance. In particular, there’s confusion and misinformation regarding the terms “claims-made” and “occurrence.” Which policy language will best meet your needs?
Both claims-made and occurrence coverage have their pros and cons. While some people may swear by one over the other, they're relatively equal. Depending on your role and future plans, one form may be more beneficial to you than the other. A practice owner has different insurance needs than an independent contractor working at multiple locations.
The key to wading through the varying opinions on claims-made versus occurrence is understanding how each form works. Consider factors such as your practice type, career stage, and risk tolerance. Choose the one that best aligns with your specific needs so you can stay protected from malpractice claims.
Here’s a brief overview of the two forms, which highlights the benefits and risks of each, so you can determine the best fit for your situation.
What is occurrence form coverage?
Occurrence form coverage is professional liability insurance that triggers coverage based on the “incident date.”
Example: Suppose a dentist provides treatment in May 2024, and the patient files a lawsuit in 2026. The dentist would file the claim against the occurrence policy that was in force in May 2024.
Who benefits from an occurrence insurance policy?
An occurrence policy tends to be attractive for the following groups:
- Dentists in transition: Occurrence policies can be beneficial for dentists who are uncertain about their future career paths. For instance, if you're an associate in a private practice but considering a move to a dental support organization (DSO) or starting your own practice, an occurrence policy provides flexibility. It allows you to cancel your coverage easily when your circumstances change and protects you throughout your career journey.
- Part-time dentists: If you're employed by a dental company but also work part-time at another practice, an occurrence policy can be invaluable. While your employer's coverage may not extend to your part-time work, an occurrence policy can provide the necessary protection for these additional hours. This ensures that you're adequately covered regardless of where you practice.
Pros of occurrence form coverage
Dental professionals choose occurrence form coverage for the following reasons:
- Easy to understand: One of the primary advantages of occurrence policies is their simplicity. With an occurrence policy, you're automatically covered for any claims arising from incidents that occurred during the policy period, regardless of when the claim is filed. This eliminates the uncertainty and potential complexities associated with claims-made policies.
- Continuous coverage: Unlike claims-made policies, which may require purchasing tail coverage to maintain protection after the policy expires, occurrence policies ensure ongoing coverage. This provides peace of mind for dentists who want to avoid the potential disruptions and additional costs associated with gaps in coverage.
- Permanent coverage tied to the original company: Though it's more expensive, the policy will always be there to defend a claim regardless of when the claim is filed (until the policy limits are exhausted).
Though occurrence form policies are more expensive, many dental professionals find the peace of mind, simplicity, and flexibility are worth the extra cost.
Drawbacks of occurrence form coverage
Anyone considering occurrence coverage needs to understand the policy’s potential drawbacks:
- More expensive: You’ll have to weigh whether the higher price tag is worth it to you.
- Dependence on insurer solvency: Occurrence form coverage is only permanent if the insurer remains solvent. If the company that issued the occurrence policy goes bankrupt, the policy becomes essentially worthless. This is an extreme example and unlikely in today’s market but helps illustrate how the coverage works.
- Permanent tie to insurer: If you (the policyholder) want to move from one insurance company to another, you will still have a permanent relationship with the prior company, even after you move. If the decision to move was triggered by an unfavorable experience like the mishandling of a claim situation, moving does not mean the relationship ends. If at some point in the future a new claim surfaces from treatment provided under that prior policy, you will need to work with the prior company, even if you no longer have confidence in their service.
What is claims-made form coverage?
A claims-made form is a professional liability policy that triggers coverage based on the “claim reporting date.”
Example: A dentist had a claims-made policy for calendar year 2023 but decided to change insurance companies on January 1, 2024. In May 2024, a patient files a malpractice lawsuit for a 2023 procedure. The dentist would file the claim against the claims-made policy that is in force in May 2024 — the currently active policy — if that policy includes tail coverage.
Tail coverage supplements claims-made policies and protects you from allegations of malpractice related to incidents that occurred in prior years but did not come to light until later. The tail forms automatically as policy terms renew and accrue.
Who benefits from a claims-made policy?
Claims-made policies are often recommended for practice owners, due to their long-term cost-effectiveness and flexibility. If you’re not planning on making big changes in your career or location, a claims-made policy may be right for you.
By maintaining the same policy over time, practice owners can benefit from potential savings on premiums.
Pros of claims-made coverage
Dental professionals choose claims-made coverage for the following reasons:
- Less expensive: The premium is typically lower, which helps your practice's budget.
- Portability: Claims-made coverage can be transferred from one insurance company to another.
- Transferable tail coverage: The tail is portable from one insurance company to another. That’s how it is designed to work, and there is no real cost associated with the transfer of the tail. If you want to move to a new insurance company, you simply transfer the tail and never have to interact with the old insurance company again.
- Changes to coverage limits are retroactive: Increases in coverage limits can become retroactive. The coverage limits available to address a claim are the limits in place at the time the claim is made. So, if the limits increase, any claim made after the increase is subject to the higher limits (even if the event giving rise to the claim took place prior). This is particularly valuable for practice owners who anticipate growth, increased wealth, or changes in the legal landscape.
Drawbacks of claims-made coverage
- The tail on a claims-made policy can be lost if the dental professional lets the policy lapse for non-payment of premium. Losing a tail is bad. Once it’s lost, it’s gone forever.
Note: Cancellation is unlikely to happen without your knowledge. In addition to sending a bill, all insurance companies are required to send a “notice of cancellation” letter by certified mail before canceling a policy. If you delegate insurance premium payments to an office manager or someone else, mark your calendar to double-check the payment status before each renewal date.
- In addition, claims-made policies can be complex. Understanding the nuances of retroactive dates, tail coverage, and other provisions can be challenging. This complexity sometimes leads to confusion and potential misunderstandings regarding coverage.
Making the right choice: Claims-made or occurrence
So, which is better: claims-made or occurrence? It depends on your situation. If you're a seasoned dentist and long-term practice owner with a clear career path, a claims-made policy might be the way to go. It's generally less expensive in the long run and offers flexibility. If you're still in transition, an occurrence policy can provide peace of mind with its continuous coverage and simplified approach.
The bottom line: Don't just opt for whatever insurance the dentist next door has. Consult with an experienced insurance advisor who can evaluate your specific needs and recommend the best coverage for your unique situation.
Understanding the differences between claims-made and occurrence policies is the first step towards making informed decisions that will protect your dental license and practice for years to come.
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