There are three types of medical malpractice policies. Occurrence, Claims-Made or Prepaid Tail Policies.
An occurrence policy is the same type of policy you would carry for your general liability, homeowners or automobile insurance. The policy that provides coverage will depend on when the alleged malpractice occurred. If you performed a procedure in 2014 and a lawsuit is brought against you in 2016, the policy you had in 2014 would respond to the claim. An extended reporting period endorsement (tail) is not needed on an occurrence policy. Think of it as being built into the cost of the policy.
With a claims-made policy, coverage is determined when a claim is brought against you. The policy you have when a claim is made against you is the policy that covers you. If you performed a procedure in 2014 and a lawsuit is brought against you in 2016, the policy you have in 2016 would respond to the claim. A claims-made policy will include a retroactive date – the date the claims-made policy first started. A claim that is reported against you must have occurred after the retroactive date and be reported during the policy period. When the policy is cancelled, an extended reporting period (tail) is needed to cover the future claims that have yet to be filed against you. Tails can range from free due to retirement, disability or death to between 100% and 350% of the current premium. Costs fluctuate significantly depending on the carrier. The claims-made policy typically provides significant savings over an occurrence policy over the first 5 years. Depending on the carrier, this savings may offset or cover the cost of the tail.
A modified claims-made policy is a claims-made policy that has the tail cost built into the policy premium. Once the policy is cancelled, the carrier will issue a tail free of charge. There is no savings in the first 5 years and no opportunity to earn a free tail.