Mid-Atlantic Health Law TOPICS

Who Pays for Tail Coverage?

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Catherine A. Bledsoe
Spring 2010

    An employer's agreement to provide malpractice insurance to a physician requires the employer to provide coverage for any incident that occurred during the term of employment, even if the claim is not asserted until after the employment ended, a Michigan appellate court recently held in Wojnicki v. Warren Geriatric Village. The fact that the contract did not specify what type of malpractice insurance the employer would provide - a "claims-made" or an "occurrence" policy - did not render the contract ambiguous or alter the employer's obligation.

A.  The Facts
    Dr. Manisha Gupta worked as a primary care internist at Grand River Medical Center between August 2002 and December 2003.  Her employment contract provided that Grand River would "provide professional liability insurance" to Dr. Gupta. Grand River provided the insurance by having Dr. Gupta apply for the insurance, and then Grand River paid the premiums for her. Dr. Gupta applied for and received an individual "claims-made" policy.  

    In late 2005, after Dr. Gupta had left her employment with Grand River, a patient brought a malpractice action against Dr. Gupta for an incident that occurred in July 2003, when Dr. Gupta was still employed by Grand River. Dr. Gupta brought a third-party complaint against Grand River, alleging that her former employer was obligated to provide her with insurance coverage for the claim.

B.  The Decision
    The trial court ruled in favor of Dr. Gupta and against Grand River. The appellate court affirmed, finding that the contract unambiguously required Grand River to provide malpractice insurance to Dr. Gupta that would cover the period of her employment. Because the alleged malpractice that gave rise to the underlying suit occurred during Dr. Gupta's employment with Grand River, the court held that Grand River was contractually obligated to cover the claim.

    Significantly, the court rejected Grand River's argument that the contract was ambiguous because it did not specify how Grand River would provide the insurance - whether it would provide an "occurrence" policy or a "claims-made" policy. An "occurrence" policy protects the policyholder from liability for "acts or omissions" that occur while the policy is in effect, whereas a "claims-made" policy protects the holder only against "claims" that are made while the policy is in effect.  

    Generally, "occurrence" policies are more expensive because they cover the insurer's extended and uncertain period of potential involvement. "Claims-made" policies provide greater certainty to the insurer, but can leave the insured vulnerable to claims being brought against him or her after the policy has expired or is terminated. To remedy this situation for the insured, "tails" may be purchased, which extend the reporting period for "claims-made" policies.   

    In this case, the Michigan court construed the contract in such a way as to favor the employee, and to require the employer to provide what amounted to either "occurrence" coverage or "tail" coverage for a "claims-made" policy. Employers and employees can reduce the risk that courts will construe contracts in ways they did not intend by specifying the type of insurance to be provided, including the purchase of tails, and who will pay for the coverage.


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