Medical malpractice insurance and professional indemnity insurance are similar in that they both cover you if a compensation claim is made against you and your insurer will defend the claim on your behalf in such a situation.
As well as covering any compensation awarded, they both cover any associated expenses as well as any legal costs that are incurred. And unlike other forms of insurance, they are both written on a “claims made” basis which has a few implications that need careful consideration.
But although these two types of insurance are similar, the types of compensation claims that they cover are not the same.
We live in an increasingly litigious society and nobody can have failed to notice the adverts from “no win, no fee” solicitors trying to get us to claim compensation from somebody. Compensation claims can be expensive with many claims being settled for six-figure sums.
Public liability insurance covers many of these compensation claims, but it generally excludes claims arising from professional activities, and this can leave many professionals uninsured in the event of a claim being made against them.
Both medical malpractice insurance and professional indemnity insurance address this issue by covering compensation claims arising out of professional activities.
Claims made basis
Most insurance is written on an “occurrence” basis. This means that it doesn’t matter when you make the claim. It’s the insurance policy that was in force when the loss occurred that deals with the incident. If you crash your car or you are burgled, for instance, it is the policy that was in force when you crashed or were burgled that will pay the claim, even if you have moved to a different insurance company in the meantime.
With a claims made policy, it’s the policy in force when the claim is made that responds. This is important because if someone has been injured, they’re entitled to claim against you at any point in the three years following that injury, and in some circumstances, they have even longer to make a claim.
Both medical malpractice insurance and professional indemnity insurance will usually have a retroactive date. Any claims that are made against you arising from incidents that occurred prior to this date will not be covered. You should ensure that the retroactive date doesn’t leave you uninsured.
The other issue with the claims made basis is that once the insurance policy has lapsed, you’re no longer insured. Because people have up to three years to make a claim against you, this means that even when you cease trading you need to continue the insurance. Some insurers will allow you to buy “run-off” cover at a reduced premium, which covers you for claims made against you that arise from incidents occurring before you ceased trading, but not incidents that occurred after.
Types of compensation claims
Despite being similar in the way that they operate, when it comes to the types of compensation claims that are covered, there’s a huge difference between medical malpractice insurance and professional indemnity insurance.
As mentioned, unlike public liability insurance, both cover compensation claims arising out of professional activities. However, the cover under a professional indemnity policy is a lot more restrictive than the cover under a medical malpractice policy.
Professional indemnity insurance only covers compensation claims involving purely economic losses. This means that if someone makes a claim against you alleging that your professional negligence resulted in them being injured or their property being damaged, professional indemnity insurance would not cover you.
Medical malpractice insurance, however, does cover professional negligence compensation claims involving an injury or property damage. For people in the hair and beauty sector, this is an important difference. A compensation claim for facial scarring could cost £50,000 plus the cost of any private cosmetic surgery, whereas a professional indemnity insurance would not cover such a claim.