Malpractice insurance 101

By Andrea Niermeier, Contributing Writer, February 1, 2025

While medical malpractice suits first regularly appeared in the United States in the 1800s, the frequency of claims has only increased since the 1960s, with lawsuits relatively common today. Medical malpractice is defined as any act or omission by a health care professional that deviates from accepted norms of practice in the medical community and causes harm to the patient. Medical malpractice insurance, a type of professional liability insurance, protects health care professionals from liability with wrongful practices resulting in injury, medical expenses, property damage, and defense costs.

In a 2022 American Medical Association (AMA) Physician Practice Benchmark Survey, 31.2% of physicians reported having been sued in their careers to date, even if the majority of those did not result in an indemnity payout. While dermatologists are sued less frequently than some other medical specialties — accounting for 1.2% of all malpractice claims — as many as 75% of dermatologists can expect to face a legal claim by age 65. Dermatologists can better protect their practice by dedicating time to review and understand the specifics of the malpractice insurance policy that covers them.

Key components of malpractice insurance

When choosing a policy, dermatologists should know the scope of the policy, exclusions, and coverage limits. “A common misunderstanding is thinking that malpractice insurance covers everything related to your practice,” said Faiza Wasif, associate director of practice management at the American Academy of Dermatology. “However, policies may have exclusions for certain high-risk procedures or limits on payout amounts, so it’s important to review your policy carefully to ensure it fully meets your needs.”

A dermatologist’s focus on medical dermatology, cosmetic dermatology, or a combination of both can affect the type of coverage needed. For example, dermatologists should ensure, as needed, that their policy covers teledermatology and dermatology-specific risks, such as cosmetic procedures, laser treatments, and other provided specialized services. Furthermore, policies paid by employers may only cover services rendered for that organization. Some dermatology procedures like botulinum toxin injections or laser treatments can increase liability and require higher coverage limits, or the maximum amount the policy will pay out. Clark Haley, senior broker for Aon’s national health care practice, warned, “If you perform elective procedures, be cautious. These procedures can result in high-severity claims.”

While standard coverage limits are generally $1 million per occurrence and $3 million aggregate coverage for most specialties, the coverage can vary depending on location, specialty, and risk exposure. State law often impacts coverage limits. Some states like Pennsylvania require a $1 million/$3 million coverage minimum to obtain a medical license, whereas other states like New York recommend malpractice insurance but do not require it. Pennsylvania, along with other states like Kansas and Louisiana, have state-operated patient compensation fund programs that cap a defendant health care professional’s claim exposure at a specified amount and fund any amount of claim exceeding the threshold. Participating physicians in those states are required to maintain limits no less than the threshold. Certain regions, such as those around large cities, can have higher malpractice risks or larger potential settlements that may require higher coverage, and some institutions within a state may mandate certain malpractice limits to receive rights to practice.

A malpractice insurance policy often not only covers the settlement or awarded damages but also the legal defense costs. However, Haley noted, “We are starting to see some carriers try to include legal defense fees within the coverage limit. A dermatologist should make sure that defense costs are in addition to the limit, especially with today’s cost of legal fees.” Defense allotment can vary between policies, and health care professionals should consult with their insurer or attorney to understand those benefits. Attorney Vasilios (Bill) Kalogredis, chairman of Lamb McErlane’s health law department, added, “You may not end up losing a case, or even getting to a case or trial, but you may need a lawyer early on to fight or fend off a suit and you will want those legal fees covered.”

Coverage for group practices, non-physician providers, and business entities

Often, physicians in a group may share the same insurer, but each physician needs their own individual malpractice policy or to be listed individually on any group policy for the practice or institution. While non-physician providers like nurses and medical assistants are generally included under the supervising physician’s coverage, this depends on the terms of the policy. Nurse practitioners and physician assistants may need their own policy, as well as aestheticians, who may perform specific aesthetic procedures with unique liabilities not covered by a practice’s policy. Consulting with an attorney who specializes in health care law can help ensure everyone in a practice is properly covered and clarify the legal responsibilities for supervising physicians who may be liable for actions of staff.

In addition to individual physician or staff coverage, a practice or institution should have entity or business coverage. “The entity coverage is important because the entity is going to get sued too if it has any assets. An entity should not only be covered for the liability but also for the legal fees,” Kalogredis cautioned. He recalled a small professional corporation who paid the premium for individual physician malpractice coverage but wanted to save money by not buying coverage for the professional corporation. When both the doctors and the corporation were sued, they realized the entity did not have any coverage for legal fees. “There’s a conflict of interest there,” he added, “if the entity says they have less responsibility than the individual doctor.” Haley noted that many times allied health professionals or technicians are covered under the corporation or entity policy.

Types of policies

Understanding the type of policy an insurer is offering is very important. Kalogredis stated, “The number one thing I make sure my clients understand when evaluating insurance plans or joining a practice or entity is what kind of coverage they are getting.” Physicians are often not aware of the difference between the two main types of malpractice insurance: occurrence and claims-made coverage.

Occurrence coverage is generally more expensive but also more comprehensive. This type of policy covers incidents that occur during the life of the policy regardless of when the claim is filed. For example, if a health care professional pays the premium for calendar year 2025, they are still covered if a claim is filed in 2027 for something that occurred in 2025, no matter if the professional still carries an occurrence policy or not. “The occurrence of the alleged malpractice is the measurement parameter,” Kalogredis explained. Haley highlighted that a physician has a set of limits for each year they are covered in an occurrence plan. “While this type of policy may be more favorable, carriers are more reluctant to offer this type of policy because of the legacy issues associated with it.”

Claims-made coverage covers incidents only if both the event and the lawsuit occur when the policy is active. While claims-made coverage can be less expensive up front, dermatologists should ensure they are properly covered in instances when they change policies, move to another state, or change employment. For example, if a dermatologist has a claims-made policy in 2025 but changes to a different policy in 2026, they would need to pay an extended endorsement coverage premium, often called a tail premium, to ensure continued coverage for 2025.

When dermatologists look to join a practice, the coverage of tail premiums can be an important part of contract negotiations. “For my clients, I try to get the employer to pay for either occurrence coverage or claims-made coverage with an agreement that the employer will pay for that tail-coverage premium,” Kalogredis commented. This can be particularly important for Mohs surgeons who may have higher premiums. Sometimes an employer may agree to pay the tail under certain conditions, such as a death or disability. Also, if a dermatologist has been in a claims-made policy for a significant number of years and then retires from practice, some policies waive the requirement to purchase tail coverage.

Another way to close any gaps in liability coverage is with nose coverage. If a dermatologist leaves an employer with a claims-made policy, they should ask their new employer to pick up the previous policy’s retroactive date so there is no gap in coverage or need to purchase an extended reporting endorsement. Nose coverage can also be negotiated as part of the contract with the new employer. In any case, employment contracts should clearly outline who is responsible for liability, tail, or nose coverage.

Get more guidance on employment contracts by seeking legal counsel or visiting the AAD's webpage on employment contracts.

Choosing a policy

When deciding between a claims-made and an occurrence policy, Wasif recommends that a dermatologist consider factors such as long-term career plans, the likelihood of switching practices or retiring, and the potential for claims to arise after a procedure. State laws, employer or practice requirements, professional risks and financial implications — such as the cost of nose or tail coverage — may also play a significant role in the decision. “Given the complexity of the choice and its long-term impact on coverage, it’s advisable that a dermatologist consult with an insurance expert or health care attorney to ensure the selected policy aligns with a professional’s goals and risk profile,” Wasif advised. Seeking legal counsel when establishing malpractice coverage and risk management strategies ensures state and federal compliance and adequate protection against malpractice claims without over-insurance.

Haley suggests first evaluating the insurance company itself when choosing a policy with a carrier. “Look at the financial stability of the company. We promote carriers with an A+ or A rating because they show some kind of power for paying claims down the road.” Not only can insurance experts help dermatologists identify quality insurers, they can inform about concerns or risk factors specialty groups face and any exclusions, terms, and conditions of a policy. For example, malpractice policies often do not cover illegal acts, intentional law violations, or sexual misconduct. In addition, they can be voided or invalidated if a physician falsifies information on an application, fails to disclose prior claims, or does not follow policy terms. Insurance brokers may also help a dermatologist determine if they need any supplemental insurance for board hearings, Board of Medicine actions, or HIPAA compliance. Audrey Greening, chief broking officer for Aon’s national health care practice, noted, “Having someone with the expertise to guide the health care professional through the process is important. Understanding policy wording, coverage triggers, and beneficial features that may help with risk management ultimately protects the physician.”

All in the details

As dermatologists review their malpractice policies with an insurance expert or attorney, understanding key details about clauses, claims triggers, and deductibles can prevent any surprises should a claim be made down the road. A consent-to-settle clause in a policy allows physicians to prevent insurers from settling claims without their consent. A settlement must be reported to the National Practitioner Data Bank and can affect a physician’s career in terms of insurance status and hospital privileges, so such a clause may be important to a physician. Another clause sometimes found in malpractice insurance policies is the hammer clause. Should a physician choose not to settle a lawsuit, this clause would allow a penalty that could force a physician to pay the difference if a trial results in a higher award than a settlement would have. Haley acknowledged that ideally a physician would want the consent-to-settle clause without the hammer clause in a policy.

What triggers a claim can also vary depending on verbiage in the policy. With a written-demand claims trigger, an insurance carrier only recognizes a claim after a written demand for money is made. An incident-driven claims trigger requires the physician to report and file a claim before any request for money. Haley commented, “A lot of carriers used to issue policies with written-demand claims triggers, but now they are trending more toward incident-sensitive forms. These are details you really have to read in the policy and make sure you are familiar with so a claim isn’t denied.”

While some malpractice policies do not have a deductible for claims, deductibles can potentially lower the cost of malpractice insurance for physicians. However, knowing the type of deductible in the policy can help a practice anticipate that expense should a claim arise. With an indemnity-only deductible, the health care professional only owes a deductible if the insurer makes an indemnity payment as the result of the claim. If a lawsuit goes to trial but is ruled in favor of the defendant, the health care professional would not owe a deductible toward those legal expenses. However, if a policy has an indemnity-and-defense deductible, the health care professional pays a deductible whenever any kind of expense is incurred while defending a claim, regardless of the outcome. For example, if a lawsuit is filed but ruled in favor of the defendant, the health care professional would still pay the deductible toward any legal fees accrued during the process, even though no indemnity is paid.

For dermatologists who may sometimes feel like exposed targets for malpractice claims, malpractice insurance provides an important layer of defense. Taking the time to regularly review, understand, and shop for a malpractice insurance policy is good practice. Disclosure, apology, and offer programs may also help mitigate the risk of a lawsuit. However, the strongest shield dermatologists carry is their own careful actions and decisions. Greening recognized, “Creating best practices and risk management protocols and communicating those to your physician insurance carrier can be helpful.” Emphasizing patient safety, informed consent, effective communication, thorough documentation, and continuing education are all practices that not only protect health care professionals but also the patients they serve.

This content was created with the particular needs of early-career dermatologists in mind. See the rest of our Career Launch resources for young physicians.

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