A brief discussion with psychologists at any risk management seminar quickly reveals that few of them have ever read their malpractice insurance policy and those few who have gained a poor understanding of what is written in it.
This is not because psychologists are easily confused, but because these policies are written in a rather unique combination of legal and insurance lexicon. Policies often reflect an insurance company’s intentions, but, sadly, are written with additional language that results from coverage battles where creative claimants have attempted to expand coverage beyond what the carrier believes is reasonable.
Therefore, what an insurance policy does not cover is probably best understood by first outlining what it is designed to cover. Before continuing, it is important to point out that this article is not about a specific insurance policy but about how professional liability policies are usually crafted.
Professional liability policies are designed to address risk in only one venue, that of a civil action taken against a practitioner for the commission of an act of malpractice. The carrier pledges in the policy to pay money that the insured becomes legally obligated to pay as a result of a judgment, commonly a jury verdict, or in a settlement related to the claim.
Since an insurance company commonly issues policies with limits of a million dollars or more, they are careful about protecting the insured and also do what they can to avoid or reduce the amounts paid out. In so doing, they defend the psychologist in any legal proceeding, covering the costs for that defense. They also indemnify (pay damages on behalf of) the defendant if the case settles or if a jury decides that malpractice did occur. That’s it. It is all fairly simple.
There are some other things about which policy holders should be aware.
First, most policies require that the carrier be notified immediately when the potential of a legal action against them surfaces. This is because the insurance company wants to have time to put together a defense and, since they have years of experience defending claims, they do not want the psychologist to jeopardize the defense by taking independent action. In addition, if a psychologist fails to comply with this requirement, the carrier can limit their obligations in the matter or, if the psychologist has done too much damage to the case, the carrier could even deny coverage.
Over the years many insurance companies have added supplemental coverage to their policies to address emerging risks and to make their policies more competitive. For example, most carriers also provide some type of coverage for complaints that have been filed with a state licensing board. Generally policies reimburse for legal representation in the matter and also do so in related proceedings, such as meetings with investigators and consultations. However, once again, most carriers will require that they be notified of an action taken against an insured as early in the process as possible. In addition, each carrier may have special coverage for other areas of risk such as depositions, insurance audits and other types of administrative or legal actions.
That is generally what most policies cover. The extent of these types of coverage is best found by reading the insurance policy or consulting with the agent or carrier.
This now leads to the discussion of what most policies do not cover. What follows, of course, depends upon your specific policy but generally most major carriers provide similar coverage and exclusions.
First, an insurance policy will not defend or cover any criminal act. Simply put, it is against public policy to sell a product that arguably promotes or protects criminal behavior. Consequently, insurance companies cannot insure against a criminal act. Just as your auto insurance policy would not defend you for a traffic ticket or DUI, if you are being prosecuted in a criminal proceeding, the expenses for the defense of a criminal act related to professional practice will probably not be covered.
During the operation of their clinical practices, psychologists will run into a number of business-related legal issues. For example they may sign a lease for office space or be asked to sign a contract with a managed care company, both of which may raise legal questions. In addition, they may receive a subpoena related to some professional service that they provided. Malpractice insurance is not going to cover the costs of dealing with these matters.
While a carrier might provide, as part of the benefit, a legal and/or professional consultation service, this does not mean that the policy will cover all practice-related legal expenses. Simply put, these expenses, should they occur, are business expenses.
Other related, and uncovered expenses, include legal costs for reviewing a contract or for dealing with contract disputes that might evolve from some type of business dispute. Coverage also does not usually exist when professional conduct is being examined by an administrative entity such as a hospital or university board, or in an ethics proceeding conducted by a state or national level organization. Finally, insurance policies are not designed to cover intentional acts such as discrimination or violations of the Americans with Disabilities Act.
A malpractice policy can be quite complex. It is important that psychologists take the time to read their policies and, when they have questions about coverage, they should contact their agent or carrier for the answers to those questions.