Definition
An occurrence policy is a type of medical malpractice insurance that covers you for any incident that takes place during the policy period, no matter when the claim is actually filed. Think of it as providing lifetime protection for the specific years you were insured. If an incident happens in year one of your policy, you are covered even if the patient files a lawsuit ten years later, long after the policy has expired.
This is the direct opposite of a Claims-Made Policy, which requires the policy to be active when the claim is reported.
Why This Matters to Healthcare providers
The type of malpractice policy you have directly impacts your financial risk when you sell your practice or retire. An occurrence policy eliminates the need to buy expensive “tail coverage” because your liability for past events is already covered, simplifying the transaction for both you and the buyer.
Example in Healthcare M&A
Scenario: Dr. Chen is preparing to sell her successful dermatology practice to a private equity-backed group as part of her retirement plan. For all 25 years of her practice, she maintained an occurrence-based malpractice policy.
Application: During the buyer’s due diligence, they review her insurance history. They see the occurrence policies and confirm that any potential claims from Dr. Chen’s entire career are already covered by her past insurers. There are no gaps in coverage that could create future liability.
Outcome: The transaction proceeds smoothly without any complex negotiations around who will pay for tail coverage. Dr. Chen enters retirement with the peace of mind that she is protected from future claims related to her past work, and the buyer acquires the practice without inheriting her personal liabilities.
Related Terms
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Frequently Asked Questions
What is an occurrence policy in medical malpractice insurance?
An occurrence policy is a type of medical malpractice insurance that covers any incident that happens during the policy period, regardless of when the claim is filed. It provides lifetime protection for the years you were insured, meaning an incident occurring during the policy period is covered even if the lawsuit is filed years after the policy has expired.
How does an occurrence policy differ from a claims-made policy?
An occurrence policy covers incidents that happen during the policy period no matter when the claim is made, whereas a claims-made policy only covers claims reported while the policy is active. This means a claims-made policy requires the policy to be in force at the time the claim is filed.
Why is occurrence policy important for healthcare providers when selling their practice?
Occurrence policies eliminate the need for expensive tail coverage because liability for past events is already covered. This simplifies the transaction for both the seller and the buyer, as it removes concerns over future claims and liability gaps related to past work.
Can you provide an example of how an occurrence policy impacts healthcare mergers and acquisitions?
In the example of Dr. Chen selling her dermatology practice, her occurrence-based malpractice policy for all 25 years meant that any potential claims from her career were already covered. During due diligence, the buyer confirmed there were no coverage gaps, allowing the transaction to proceed smoothly without negotiating tail coverage. Dr. Chen retired protected from future claims, and the buyer avoided inheriting personal liabilities.
What related terms should I know when learning about occurrence policies?
Related terms include Claims-Made Policy, Tail Coverage, Due Diligence, and Indemnification. These terms are important to understand the differences in insurance coverage, the sales process, and liability protection.